Given that KOTA Longboards, LLC adopted ASU 2016-02, Leases (Topic 842) prospectively on January 1, 2019, what primary balance sheet adjustment would be expected upon adoption, rel... Given that KOTA Longboards, LLC adopted ASU 2016-02, Leases (Topic 842) prospectively on January 1, 2019, what primary balance sheet adjustment would be expected upon adoption, relative to its manufacturing space lease?
Understand the Problem
The question describes a scenario where KOTA Longboards, LLC adopts ASU 2016-02, Leases (Topic 842), and asks what the primary balance sheet adjustment would be. Options A, B, C, and D are provided, outlining potential adjustments, and we must choose the most accurate one.
Answer
A right-of-use (ROU) asset and a lease liability would be recognized on the balance sheet.
Upon adopting ASU 2016-02, KOTA Longboards, LLC would primarily recognize a right-of-use (ROU) asset and a lease liability on its balance sheet for the manufacturing space lease.
Answer for screen readers
Upon adopting ASU 2016-02, KOTA Longboards, LLC would primarily recognize a right-of-use (ROU) asset and a lease liability on its balance sheet for the manufacturing space lease.
More Information
ASU 2016-02, Leases (Topic 842) fundamentally changed lease accounting by requiring companies to recognize lease assets and lease liabilities on the balance sheet for most leases. This provides a more transparent view of a company's leasing activities and obligations.
Tips
A common mistake is to only consider the lease liability and forget about the corresponding right-of-use asset that also needs to be recognized. Make sure to account for both.
Sources
- Solved On February 25, 2016, the FASB issued Accounting - Chegg - chegg.com
- Frequently Asked Questions About the FASB's New Leases ... - dart.deloitte.com
- [PDF] Accounting Standards Update No. 2016-02, Leases (Topic 842) - storage.fasb.org
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