Question

Effective December 15th, 2018, the operating leases will be recorded:

A) only on the income statement of the lessee as each lease payment is expensed.

B) in the footnotes rather than on the balance sheet of the lessee.

C) on the balance sheet of the lessee with value equal to the present value of futurelease payments.

D) only on the balance sheet and income statement of the lessor.

E) as an asset and liability on the balance sheet of the lessee with a value equal to the estimated residual value of the leased asset.

Answer 1

Lessor is the person who owns the equipment and Lessee is the one who has leased it to use it and generate profits.

Operating leases are simply expensed off in the income statement of the lessee. Only the lease payments are mentioned on the income statement as a rental payment. Nothing is mentioned on the balance sheet of the lessee So option A is correct and option C & E are incorrect

Option B is incorrect as it is not only mentioned in the footnotes.

For the lessor the title doesnt transfer to the lessee so he will continue to reacord the asset on his balance sheet and lease payments as income on the income statement. So basically the leases payments are only recoreded in his income statement. So option D is incorrect.