Problem
A. If the lessee applies capitalization for a lease, it then needs to recognize a Right-of-Use Asset and Lease Liability at the commencement of the lease on its books. How to determine the initial balance (or balances) of the Right-of-Use Asset and Lease Liability?
B. Briefly explain the lease classification for lessor accounting.
C. If a lease is classified as a sales-type lease, what journal entry or entries should be prepared at the commencement of the lease? Explain the rationale behind.
D. Does the initial balance of lessee's lease liability equal the fair value of the leased asset at the inception of the lease? Explain.