The following footnote was disclosed at the beginning of 2011 (January 1, 2011). The capital lease began

Question:

The following footnote was disclosed at the beginning of 2011 (January 1, 2011).

The capital lease began on January 1, 2010when the fair value of the capital lease was $21,776 (with a six-year life). The operating lease began on January 1, 2011 when the fair value of the operating lease at the inception of the lease was $14,921 (with a three-year lease term). Straight-line depreciation is used for all assets. Each lease requires equal annual payments to be made at year-end.

Required:
1. Under existing U.S. GAAP, what is the amount of lease liability recorded on the balance sheet at January 1, 2011?
2. If the proposed changes in accounting for leases become authoritative, what would be the amount of lease liability recorded on the balance sheet at January 1, 2011?
3. Which approach (part 1 or part 2) do you think provides more relevant information to the users of the financial statements?Why?

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...