JournaldrillFinance lease at commencement
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
On January 1, Summit Freight signs a 5-year lease for a forklift that qualifies as a finance lease. Payments are made at the end of each year, and the present value of the lease payments is $105,309.09. There are no initial direct costs or prepaid payments. Record the lease at commencement.
What this exercise teaches
Both the right-of-use asset and the lease liability start at the $105,309.09 present value of the payments. Because the first payment is not due until year end, no cash moves today. The lessee debits a Right-of-Use Asset rather than Equipment because it obtains the right to use the forklift, not ownership of it.
A hint if you get stuck
At commencement the lessee records an asset for the right to use the forklift and a matching obligation.
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