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Included |
Excluded |
|
|
Initial measurement of lease liability |
$900,000 |
Lease payments made to Lessor Corp before the commencement date (i.e., before the first lease payment) |
10,000 |
Lease incentive received from Lessor Corp at lease execution date |
(50,000) |
Initial direct costs |
1,000 |
Initial measurement of right-of-use asset |
$861,000 |
Dr. Prepaid rent |
$10,000 |
|
Cr. Cash |
$10,000 |
|
To record the initial lease payment due at lease inception |
Dr. Cash |
$50,000 |
|
Cr. Lease incentive |
$50,000 |
|
To record receipt of the lease incentive from the lessor. |
Dr. Right-of-use asset |
$900,000 |
|
Cr. Lease liability |
$900,000 |
|
To record the right-of-use asset and lease liability |
Dr. Lease incentive |
$50,000 |
|
Cr. Right-of-use asset |
$50,000 |
|
To reclassify the lease incentive as an offset to the right-of-use asset |
Dr. Right-of-use asset |
$10,000 |
|
Cr. Prepaid rent |
$10,000 |
|
To reclassify the prepaid rent as an offset to the right-of-use asset |
Dr. Right-of-use asset |
$1,000 |
|
Cr. Accrued expenses |
$1,000 |
|
To record the initial direct costs |
Lease term
|
5 years, no renewal option
|
Remaining economic life of the leased equipment
|
6 years
|
Purchase option
|
None
|
Annual lease payments
|
$1,100
|
Payment date
|
Annually on January 1 (first payment made at lease commencement)
|
Lessee Corp’s incremental borrowing rate
|
7%
The rate Lessor Corp charges Lessee Corp in the lease is not readily determinable by Lessee Corp.
|
Other
|
|
Dr. Right-of-use asset |
$4,825 |
|
Cr. Lease liability |
$3,725 |
|
Cr. Cash |
$1,100 |
Lease term
|
10 years
|
Renewal option
|
Five 5-year renewal options
If exercised, the annual lease payments are reset to then current market rents
|
Remaining economic life
|
40 years
|
Fair value of the leased property at commencement
|
$5,000,000
|
Purchase option
|
Lessee Corp has an option to purchase the property at the end of the lease term for $3,000,000. Lessee Corp is reasonably certain to exercise this option.
|
Annual lease payments
|
The first annual lease payment is $500,000, with increases of 3% per year thereafter (see schedule of lease payments below).
|
Payment date
|
Annually on January 1 (first payment made at lease commencement)
|
Incentive
|
Lessor Corp gives Lessee Corp a $200,000 incentive for entering into the lease (payable at the beginning of year 2), which is to be used for normal tenant improvements.
|
Lessee Corp's incremental borrowing rate
|
9.04%
The rate that Lessor Corp charges Lessee Corp in the lease is not readily determinable by Lessee Corp.
|
Other
|
|
Date |
Amount |
Year 1 (paid at commencement) |
$500,000 |
Year 2 ($515,000 – $200,000 lease incentive) |
315,000 |
Year 3 |
530,450 |
Year 4 |
546,364 |
Year 5 |
562,754 |
Year 6 |
579,637 |
Year 7 |
597,026 |
Year 8 |
614,937 |
Year 9 |
633,385 |
Year 10 |
652,387 |
Total |
$5,531,940 |
PV of annual lease payments, less lease incentive |
$3,237,510 |
PV of purchase option at end of lease term |
1,262,490 |
Total lease liability |
$4,500,000 |
Dr. Right-of-use asset |
$5,000,000 |
|
Cr. Lease liability |
$4,500,000 |
|
Cr. Cash |
$500,000 |
Lease term
|
3 years, no renewal option
|
Remaining economic life of the automobile
|
6 years
|
Purchase option
|
Lessee Corp has the option to purchase the automobile at fair market value upon expiration of the lease.
|
Monthly lease payments
|
$500 (first payment made at lease commencement)
|
Payment date
|
Beginning of the month
|
Lessee Corp’s incremental borrowing rate
|
6%
The rate Lessor Corp charges Lessee Corp in the lease is not readily determinable by Lessee Corp.
|
Other
|
|
Dr. Right-of-use asset |
$16,518 |
|
Cr. Cash |
$500 |
|
Cr. Lease liability |
$16,018 |
Lease term
|
3 years, no renewal option
|
Remaining economic life of the copier
|
5 years
|
Purchase option
|
None
|
Annual lease payments
|
$500, which includes Lessor Corp maintenance for the term of the lease
Lessor Corp normally leases the same copier for $475 per year and offers a maintenance contract for $75 per year.
|
Payment date
|
Annually on January 1 (first payment made at lease commencement)
|
Lessee Corp’s incremental borrowing rate
|
5.5%
The rate Lessor Corp charges Lessee Corp in the lease is not readily determinable by Lessee Corp.
|
Other
|
|
Standalone price (A) |
Relative % (A/$550) = (B) |
Annual fixed payment (C) |
Allocated annual payment (B × C) |
|
Annual copier lease payment
|
$475
|
86.4%
|
$500
|
$432
|
Annual maintenance contract fee
|
75
|
13.6%
|
$500
|
68
|
Total
|
$550
|
100%
|
$500
|
Dr. Right-of-use asset |
$1,330 |
|
Cr. Lease liability |
$798 |
|
Cr. Cash |
$532 |
Lease term
|
4 years, no renewal option
|
Remaining economic life of the leased equipment
|
7 years
|
Purchase option
|
None
|
Annual lease payments
|
The first annual payment is $1,500
The annual payment increases each year by the prime rate on January 1st. For example, if the prime rate is 3% on January 1, 201X, then the lease payment for year two would be $1,545 ($1,500 + ($1,500 × 3%)).
|
Payment date
|
Annually on January 1 (first payment made at lease commencement)
|
Lessee Corp’s incremental borrowing rate
|
8%
The rate Lessor Corp charges Lessee Corp in the lease is not readily determinable by Lessee Corp.
|
Other
|
|
Date |
Amount |
Lease commencement |
$1,500 |
Year 2 |
1,545 |
Year 3 |
1,591 |
Year 4 |
1,639 |
Total |
$6,275 |
Dr. Right-of-use asset |
$5,596 |
|
Cr. Lease liability |
$4,096 |
|
Cr. Cash |
$1,500 |
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Select a section below and enter your search term, or to search all click Leases