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•Lease term of 4 years, non-cancellable •Annual payments $5,000 (due at beginning of each year, starting...

•Lease term of 4 years, non-cancellable

•Annual payments $5,000 (due at beginning of each year, starting September 1, 2018)

•Fair value of asset August 31, 2018, 2022 and 2024:

    $24,000, $6,000 and $1,000 respectively

•Probability-weighted expected value of residual $1,000

•Lessor’s initial direct costs $365

•Lease has renewal option, which will likely be taken to renew lease for 2 additional years at $4,500 per year

•Lessee’s incremental borrowing rate = 9%

•Rate implicit in the lease = 9%

•Title retained by lessor

What is the Entry to record initial lease transaction (Right of use asset)

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