[jdubb333]

My question is pretty much the title of this post. What is the capital lease amount recorded by the lessee at inception as a liability?

I took a Becker practice exam last weekend and had a SIM on capital leases. The capital lease at inception was recorded by the lessee at the PV of the minimum lease payments, which was $850,000. The FV of the leased property at inception was given as $750,000.

Now I’m working in the Wiley CPA test bank and this question came up:
For a capital lease, the amount recorded initially by the lessee as a liability should…
Answer:
Not exceed the fair value of the leased property at the inception of the lease.

These two answers seem to contradict each other. My Becker SIM should have been recorded at $750,000 if Wiley’s answer is correct. Can someone please fill me in on the correct way to account for the capital lease liability by the lessee at inception?

Thanks!!!
JDUBB333

BEC – 80
REG – 78
AUD – 77
FAR – May 15th

[Jj]

I've found weird errors in Becker too. From what you mentioned above Becker is wrong. The lessee records capital leases at the lower of FV or PV of min lease payments.

[jdubb333]

Thank you Beantown23!!!

[Author]

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