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Modification and remeasurement of a lease
Year 4 Year 5 Year 6 Year 7 Year 8 Total
Lease
payment $104,000 $104,000 $114,400 $114,400 $114,400 $551,200
Discount 0 5,887 12,584 18,348 23,784 60,603
Present value $104,000 $98,113 $101,816 $96,052 $90,616 $490,597
To calculate the adjustment to the lease liability, Lessee Corp would compare the recalculated and
original lease liability balances on the remeasurement date.
Revised lease liability $490,597
Original lease liability 195,238
$295,359
Lessee Corp would record the following journal entry to adjust the lease liability.
Dr. Right-of-use asset $295,359
Cr. Lease liability $295,359
After the adjustment, the right-of-use asset will be equal to $494,597 (original balance of $199,238 +
$295,359).
Income statement impact
The single lease expense would be recalculated using the following formula.
Future undiscounted cash flows at the remeasurement date + (the right-of-use asset
– the lease liability after the remeasurement)
Remaining lease term
$551,200 + ($494,597 - $490,597) = $111,040 single lease expense
5
The annual single lease expense of $111,040 would be recognized for the remaining term of the lease.
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