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Accounting for leases
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.
Rate implicit in the lease Approximately 9.04%
Other □ Title to the property does not automatically transfer to
Lessee Corp upon lease expiration
□ Lessee Corp does not guarantee the residual value of the
real estate asset
□ Lessee Corp pays for all maintenance, taxes, and
insurance on the property separate from the lease
□ There are no initial direct costs incurred by Lessor Corp
The schedule of lease payments (excluding the purchase option exercise price) is shown below.
Date Amount
Lease 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
*See LG 9 for presentation considerations for the lease incentive receivable.
Lessor Corp uses leases for the purposes of providing financing, therefore it presents any selling profit
or loss in a single line item in the income statement. See LG 9.3.2.1 for information on the
presentation of selling profit or loss in the statement of comprehensive income.
Lessor Corp determines that the lease is a sales-type lease.
How would Lessor Corp measure and record this lease?
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