CPA Comprehensive Full Mock Exam

Sample Question

A lessee signs a 5-year lease. The implicit rate in the lease is 5% and is readily determinable. The lessee's incremental borrowing rate is 7%. Under ASC 842, which rate should the lessee use to discount the lease payments?

• A.7%, because lessees must always use their incremental borrowing rate
• B.5%, because the implicit rate is readily determinable and must be used when known
• C.The higher of the two rates to be conservative
• D.Either rate at management's election

Purchase to see the answer and explanation.