Multiple Choice
When The Home Depot provides services that were previously paid for with a gift card (recorded as unearned revenue), which adjusting journal entry should be made?
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3. Accrual Accounting Concepts
Adjusting Entries: Unearned Revenue
Multiple Choice
When is a nonlease component of a lease agreement recorded separately from the lease payments?
A
When the nonlease component provides a distinct good or service to the lessee and its price can be reasonably allocated.
B
When the lease is classified as a finance lease.
C
Only if the lease is for real estate property.
D
Only when the lease term exceeds 12 months.
Verified step by step guidance1
Understand the concept of nonlease components: Nonlease components in a lease agreement refer to goods or services provided to the lessee that are separate from the right to use the leased asset. Examples include maintenance services, utilities, or other distinct services.
Identify the criteria for recording nonlease components separately: Nonlease components are recorded separately when they provide a distinct good or service to the lessee and their price can be reasonably allocated. This ensures proper accounting treatment and compliance with lease accounting standards.
Review the lease classification: The classification of the lease (e.g., finance lease or operating lease) does not directly impact whether nonlease components are recorded separately. The focus is on whether the nonlease component meets the criteria of being distinct and reasonably allocable.
Evaluate the lease term: The lease term exceeding 12 months is not a determining factor for recording nonlease components separately. The key consideration is whether the nonlease component provides a distinct good or service and its price can be allocated.
Apply the accounting standard: Refer to the applicable accounting standard, such as ASC 842 (US GAAP) or IFRS 16, which provides guidance on separating lease and nonlease components. Ensure compliance by assessing the distinct nature and allocable price of the nonlease component.
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