[The following information applies to the questions displaye…
In an operating lease, a sale is not recorded by the lessor. Instead, the periodic lease payments are accounted for as rent revenue by the lessor. The lessee records a right-of-use asset and lease liability at the present value of the lease payments. Interest expense is recognized at the effective rate times the outstanding balance. Amortization of the right-of-use asset is determined as the amount needed to cause the total lease expense (interest plus amortization) to be a straight-line amount equal to the lease payment. Knowledge Check 01 Assume that the five classification criteria are applied to a lease involving equipment and, because none of the criteria is met, it is determined that a lease should be classified as an operating lease. At the beginning of the lease, the lessee: