Real World Case 155 (Static) Lease Disclosures; Microsoft [LO15-2, 15-4, 15-8]

You know, we heard in our accounting class today that a few years ago, there were advantages to structuring lease arrangements as operating leases, your study partner said unexpectedly. Now Im wondering if thats changing things for companies that lease assets. Not happy with having to suddenly change your train of thought, but now curious, you open a new tab on your laptop and locate the following disclosure note in Microsofts 2020 financial statements.

We have operating and finance leases for datacenters, corporate offices, reasearch and development facilities, retail stores, and certain equipment. Our leases have remaining lease terms of 1 year to 20 years, some of which include options to extend the leases for up to 5 years, and some of which include options to terminate the leases within 1 year.

The components of lease expense were as follows:

($ in millions)	2020	2019	2018
Year Ended June 30, Operating lease cost	$ 2,043	$ 1,707	$ 1,585
Finance lease cost:
Amortization of right-of-use assets	$ 611	$ 370	$ 243
Interest on lease liabilities	336	247	175
Total finance lease cost	$ 947	$ 617	$ 418

Supplemental cash flow information related to leases was as follows:

($ in millions)	2020	2019	2018
Cash paid for amounts included in the measurements of lease liabillities:
Operating cash flows from operating leases	$ 1,829	$ 1,670	$ 1,522
Operating cash flows from finance leases	336	247	175
Financing cash flows from finance leases	409	221	144

Maturities of lease liabilities were as follows:

($ in millions)	Operating Leases	Finance Leases
Year Ended June 30,
2021	$ 1,807	$ 880
2022	1,652	894
2023	1,474	903
2024	1,262	916
2025	1,000	1,236
Thereafter	3,122	7,194
Total leases payments	10,317	12,023
Leass imputed interest	(1,030)	(2,527)
Total	$ 9,287	$ 9,496

Required:

1. What do you notice about the trends in operating versus finance leases for Microsoft?
2. Prepare a journal entry that summarizes the lease payments for Microsofts finance leases during 2020.
3. Prepare a journal entry that summarizes the amortization of the right-of-use assets for Microsofts finance leases during 2020