On January 1 of the current year, CCH Corporation entered into the following lease contract. Based on the facts, CCH Corporation classifies the lease as an operating lease. The company has a 5% cost of debt capital.

• Leased asset: Office space.
• Lease term: 5 years.
• Annual lease payment: $207,877 due at each year-end.
• Upfront fees: $10,000 paid in cash.

Required

Note: For the following questions, round your answers to the nearest whole dollar.

a. Explain how the facts support the classification of the lease as an operating lease.
AnswerValue of the leased asset is being conveyed to CCHValue of the leased asset is not being conveyed to CCH

b. Determine the amount of the lease liability that CCH will add to its balance sheet at the inception of the lease. 

c.
1. What amount will be added to the balance sheet as an asset? $Answer
2. What will CCH Corporation call the asset on the balance sheet? AnswerApartment buildingLease assetOperating assetRight-of-use asset

d. Prepare a lease amortization schedule that shows the interest and principal portions of each lease payment.

		Implicit Interest	Lease Amortization	Lease Liability, End
	Lease Liability,	(Lease Liability,	(Lease payment –	(Lease Liability, Start –
Year	Start	Start x 5%)	Implicit interest)	Lease Amortization)
1	Answer	Answer	Answer	Answer
2	Answer	Answer	Answer	Answer
3	Answer	Answer	Answer	Answer
4	Answer	Answer	Answer	Answer
5	Answer	Answer	Answer	Answer

e. Use the financial statement effects template to record (a) the lease inception and (b) lease payment for year one and for (c) year two of the lease term. Also, show the asset and lease amortization for those same two years.

Note: For each account category, indicate the appropriate account name. Enter "N/A" for any account category that is not used for a given transaction.
Note: Indicate a decrease in an account category by including a negative sign with the amount.

($ in millions)	Balance Sheet									Income Statement
Transaction	Cash	+	Noncash Assets	=	Liabilities	+	Contrib. Capital	+	Earned	Revenues	–	Expenses	=	Net
	Asset								Capital					Income
(a)	Answer		Answer	=	Answer		Answer		Answer	Answer	–	Answer	=	Answer
	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A
(b)	Answer		Answer	=	Answer		Answer		Answer	Answer	–	Answer	=	Answer
	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A
(c)	Answer		Answer	=	Answer		Answer		Answer	Answer	–	Answer	=	Answer
	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A	AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A		AnswerAccounts payableCashLease assetLease liabilityRent expenseRent revenueRetained earningsRight-of-use assetN/A

f. At the end of the current year, what additional disclosure would CCH make in its footnotes pertaining to the four remaining lease payments?

	December 2020
2021	Answer
2022	Answer
2023	Answer
2024	Answer
2025	Answer
Thereafter	Answer
Total undiscontinued lease payments	Answer
Imputed interest	Answer
Total Operating lease liability	Answer
Weighted average remaining lease life in years	Answer
Weighted average discount rate	Answer