Section 3: 25–35%3F

Lessee Accounting

Exam insight

Classifying a lease, finance vs. operating, is your first decision, and it shows up with tricky fact patterns. A lease is a finance lease if it meets any one of the five criteria. If you only remember the 'major part of the economic life' test, you miss the other four. For the math, the lease liability is always the present value of future payments, so be sure you grab the right PV factor (ordinary annuity vs. annuity due).

What AICPA wants you to know

1Classify a lease as finance or operating using ASC 842 criteria
2Calculate the right-of-use (ROU) asset and lease liability at commencement
3Record lease journal entries for both finance and operating leases
4Calculate interest and amortization for a finance lease
5Understand the income statement presentation difference between lease types

Patterns in this topic

The exam re-skins the same archetypes. Recognize these here, then drill them in the Pattern Lab.

The Lease TestAny one of the five criteria makes it a finance lease, and under ASC 842 either kind goes on the balance sheet.

Exam tip

Study smarter: before you expand each card, cover the screen and try to recall what the concept means from its title alone. Retrieving it from memory builds the recall the exam actually tests, and it beats re-reading.