Under ASC 842, which leases must be reported on the balance sheet, while the distinction between lease types is preserved?

Under ASC 842, which leases must be reported on the balance sheet, while the distinction between lease types is preserved?

• A. Operating leases.
• B. Only finance leases.
• C. Leases are not subject to balance sheet reporting.
• D. ASC 842 only applies to real estate leases.

Answer: (A)

Under ASC 842, leases with terms longer than 12 months require balance sheet recognition of a right-of-use asset and a corresponding lease liability. The framework keeps the distinction between lease types in the income statement, but on the balance sheet both types must be reported. So, both operating leases and finance leases are shown on the balance sheet, with the right-of-use asset and lease liability reflecting the lessee’s use and obligation during the lease term. The difference lies in the income statement treatment: finance leases involve depreciation of the right-of-use asset and interest expense, while operating leases typically show a straight-line lease expense. This broader approach applies to most lease arrangements, not just real estate or a subset, which is why the other choices don’t fit.

Under ASC 842, leases with terms longer than 12 months require balance sheet recognition of a right-of-use asset and a corresponding lease liability. The framework keeps the distinction between lease types in the income statement, but on the balance sheet both types must be reported. So, both operating leases and finance leases are shown on the balance sheet, with the right-of-use asset and lease liability reflecting the lessee’s use and obligation during the lease term. The difference lies in the income statement treatment: finance leases involve depreciation of the right-of-use asset and interest expense, while operating leases typically show a straight-line lease expense. This broader approach applies to most lease arrangements, not just real estate or a subset, which is why the other choices don’t fit.