Multiple Choice
When a company borrows money from a bank, which of the following accounts are affected?
21
views
9. Current Liabilities
Types of Liabilities
Struggling with Financial Accounting?
Join thousands of students who trust us to help them ace their exams!Watch the first videoMultiple Choice
Which of the following expenses is typically recognized by a lessee in relation to an operating lease under current accounting standards?
A
Depreciation expense on the leased asset
B
Amortization expense of right-of-use asset
C
Interest expense on lease liability
D
Lease (rent) expense
Verified step by step guidance1
Understand the nature of an operating lease: Under current accounting standards (ASC 842 for US GAAP or IFRS 16 for international standards), an operating lease is treated differently from a finance lease. The lessee does not recognize the leased asset or lease liability on the balance sheet for operating leases.
Review the expenses associated with operating leases: Unlike finance leases, operating leases do not involve depreciation expense, amortization expense, or interest expense. Instead, the lessee recognizes lease (rent) expense directly in the income statement.
Clarify why depreciation expense is not applicable: Depreciation expense applies to owned assets or assets recognized on the balance sheet, which is not the case for operating leases under current standards.
Clarify why amortization expense is not applicable: Amortization expense applies to intangible assets or right-of-use assets recognized under finance leases, not operating leases.
Clarify why interest expense is not applicable: Interest expense arises from lease liabilities recognized under finance leases, but operating leases do not involve lease liabilities on the balance sheet. Therefore, lease (rent) expense is the correct recognition for operating leases.
Related Videos
Related Practice
Types of Liabilities practice set
Problem sets built by lead tutorsExpert video explanations