Scribd
Upload
2 views

Response 2 Week 4

The document discusses lease accounting under ASU 842, emphasizing the need for judgment in reporting finance versus operating leases. It outlines the criteria for classifying leases and the necessary data entries for lease agreements, including terms and payment details. The distinction between lease types is crucial as they are reported differently, affecting how lease payments are recognized in financial statements.

Uploaded by

ericopetu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
2 views

Response 2 Week 4

The document discusses lease accounting under ASU 842, emphasizing the need for judgment in reporting finance versus operating leases. It outlines the criteria for classifying leases and the necessary data entries for lease agreements, including terms and payment details. The distinction between lease types is crucial as they are reported differently, affecting how lease payments are recognized in financial statements.

Uploaded by

ericopetu
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

Discussion Week 4-Topic 2

Ashley Abraham
The data entry and discussion for this assignment will focus on leases ASU 842. The
lease accounting requires more judgment when reporting by an entity and auditor. The
business holds multiple leases—the reporting method changes depending on whether the
lease is a finance or an operating lease. The data entry created will allow the entity and
auditor to inspect the different leases that the entity operates in. According to the article, the
contract is used to identify leases, " ASU 842-10-15-2 At the inception of a contract, an entity
shall determine whether that contract is or contains a lease" (Financial Accounting Standard
Board, 2016) (p.13). The contract contains a lease if the contract conveys the right to control
the use of property, plant, or equipment for a period in exchange. The period is described in
terms which are years.

The data entry for leases sections is the location of leases, terms, rent paid, the due

date of rent payment, and landlord. The information on the data entry can be verified using

the lease agreement. The data entry and lease agreement will help identify whether the lease

is an operating or a finance lease. According to the article, a finance lease is when 1 of 5

criteria is met
1. The lease transfer owner of the asset
2. A lease grants the lessee an option to purchase an asset
3. The lease term is most of the useful life or 75% of it
4. Has specialized nature
5. The present value of the sum of the lease payment equals or exceeds fair
value (Aghimien & Matherly-Szczechowski, 2021).
It is important to differentiate between both leases because they report differently.
According to the article, "the accounting for operating leases will differ due to the assets and
liabilities now recognized. The sum of the lease payments of an operating lease will be
amortized on a straight-line basis, with each payment charged for leasing expense and
corresponding credits 1) to the lease liability for accreted interest and 2) to the right-of-use
asset for the difference" (Singer et al., 2017) (para.6).
The data entry is attached below.
References

Aghimien, P., & Matherly-Szczechowski, R. (2021). ASC 842 – New Lease Accounting
Standard. Academy of Business Research Journal, 7–19. https://0634ssfdh-mp02-y-
https-www-proquest-com.prx-keiser.lirn.net/scholarly-journals/asc-842-new-lease-
accounting-standard/docview/2714106449/se-2
Financial Accounting Standard Board. (2016, February). Leases (Topic 842). FASB.
https://fasb.org/Page/ShowPdf?path=ASU_2016-
02_Section_A.pdf&title=UPDATE+2016-02%E2%80%94LEASES+
%28TOPIC+842%29+SECTION+A%E2%80%94LEASES
%3A+AMENDMENTS+TO+THE+FASB+ACCOUNTING+STANDARDS+CODIF
ICATION%C2%AE&acceptedDisclaimer=true&Submit=
Singer, R., Pfaff, A., Winiarski, H., & Winiarski, M. (2017). Accounting for Leases Under
the New Standard, Part 1: Definition and Classification of Leases and Lessee
Accounting. The CPA Journal, 87(8), 44–51. https://0634ssfdh-mp02-y-https-www-
proquest-com.prx-keiser.lirn.net/scholarly-journals/accounting-leases-under-new-
standard-part-1/docview/2216736388/se-2

You might also like