[shmogma]

Hi
I was wondering if someone would help me better understand what the interest rate within the PV of future lease payments equation truly signifies.

Please help

thanks

FAR - 80
REG - PENDING
AUD- PENDING
BUS - PENDING

[12tang]

A future value does no good on the balance sheet. To properly record on the balance sheet, you need the value today. Remember, the balance sheet is a snapshot of a company at moment in time. So if my balance sheet says FEB 29th, 2020 I want the value of lease payments on that date to reflect the money value of today, not 5 years from now. Otherwise you're overstating the value if you use future value and that is misleading.

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[shmogma]

thanks 12tang, but the interest expense portion that is part of the ongoing entries after the fact represent what? because there are technically 3 entries that are posted at the time of asset occupancy:
1- the pv of the obligation – dr. capital asset cr. obligation
2-amortization of the capital asset – dr. amort exp cr. capital asset – (monthly perpetual entry going forward)
3-obligation related interest expense – dr. interest expense cr. Obligation -(monthly perpetual entry going forward))

Im just having trouble understanding what the interest expense is actually doing and what role it actually has as part of these entries

FAR - 80
REG - PENDING
AUD- PENDING
BUS - PENDING

[12tang]

The interest expense is merely adjusting for time value of money. A dollar yesterday is worth more than a dollar today. In your 3rd entry, it is increasing a payable. When the cash payment is made, you'll have – dr. payable dr. lease obligation cr. cash
Without that interest expense, you're basically saying that all cash paid will the same amount to reduce the obligation, which is ignoring time value of money.

Using Becker self-study
FAR: (82) 175 hours - 1st attempt
BEC: (XX)
AUD: (69) 45hrs of study - 1st attempt
REG: (XX)

[Author]

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