Lease Accounting: Primer Corp. Signs a Five-Year Lease

What did Primer Corp. do on April 1, 2021?

Primer Corp. signed a five-year lease to use office space. The present value of the monthly lease payments is $100,000. How should this lease be recorded?

Primer Corp. leased office space for five years and the present value of monthly lease payments is $100,000.

Primer Corp. would note it as a Right of Use Asset and a corresponding Lease Liability on the Balance Sheet, with the value being the present value of lease payments, $100,000.

Primer Corp.'s decision to lease office space for five years on April 1, 2021, is a positive sign of growth and business expansion. By securing office space, Primer Corp. is setting the foundation for future operations and productivity.

Recording this lease transaction correctly is crucial for accurate financial reporting and compliance with accounting standards. Primer Corp. should recognize the lease by noting it as a Right of Use Asset and a corresponding Lease Liability on the Balance Sheet.

The journal entries for this transaction would typically involve debiting the Right of Use Asset account by $100,000 and crediting the Lease Liability account by the same amount. This reflects the initial recognition of the lease and establishes the financial impact of this agreement on Primer Corp.'s balance sheet.

By following proper accounting procedures and accurately recording the lease, Primer Corp. ensures transparency and accountability in its financial statements. This helps stakeholders, investors, and analysts make informed decisions based on reliable financial information.

Overall, Primer Corp.'s decision to sign a five-year lease demonstrates its commitment to sustainable growth and operational efficiency. Through prudent financial management and strategic planning, Primer Corp. is poised for success in the competitive business landscape.