Under ASC 842, what is recognized for a lease?

• A. Only lease liability
• B. Only right-of-use asset
• C. A right-of-use asset and a lease liability
• D. None

Answer: (C)

Under ASC 842, a lessee recognizes both a right-of-use asset and a lease liability at the lease commencement. The lease liability is the present value of future lease payments, while the right-of-use asset represents the lessee’s right to use the underlying asset during the lease term. These two amounts are recorded together and evolve over time as lease payments are made (reducing the liability) and as the asset is amortized or depreciated. The pattern of expense differs between operating and finance leases, but the requirement to recognize both a right-of-use asset and a lease liability remains. So, recognizing only one or none would miss a fundamental ASC 842 requirement.