medium · Financial Accounting assets
Under ASC 842, a lessee enters a 5-year office lease with annual payments of $120,000 due at the end of each year. The lessee's incremental borrowing rate is 6%, and the present value of the payments is $505,484.
If the lease is classified as an operating lease, which of the following is true regarding the Year 1 income statement impact?
- The firm recognizes $101,097 in straight-line depreciation
- The firm recognizes $30,329 in interest expense and $101,097 in amortization expense
- The firm recognizes only the cash payment of $120,000 as an outflow in financing cash flows
- The firm recognizes a single straight-line lease expense of $120,000
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