An 8-year capital lease entered into on December 31, Year 1, specified equal minimum annual lease payments. Part of this payment represents interest and part represents a reduction in the net lease liability. The portion of the minimum lease payment in the 6th year applicable to the reduction of the net lease liability should be:

FAR CPA exam focus: Leases (ASC 842) require lessees to record Right-of-Use (ROU) assets and liabilities for operating/finance leases. Pensions focus on the plan as a separate entity rather than employer expense. Accounting changes focus on retrospective application for principles, prospective for estimates, and restatement for errors.  Lease Accounting (ASC 842) Lessee Accounting: Almost all leases (over 12 months) are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability. Finance Lease (Lessee): Similar to a purchase. Interest expense on the liability and... Show more

FAR CPA exam focus: Leases (ASC 842) require lessees to record Right-of-Use (ROU) assets and liabilities for operating/finance leases. Pensions focus on the plan as a separate entity rather than employer expense. Accounting changes focus on retrospective application for principles, prospective for estimates, and restatement for errors. 

Lease Accounting (ASC 842)
Lessee Accounting: Almost all leases (over 12 months) are recognized on the balance sheet as a Right-of-Use (ROU) asset and a lease liability.
Finance Lease (Lessee): Similar to a purchase. Interest expense on the liability and amortization expense on the ROU asset are recorded separately.
Operating Lease (Lessee): ROU asset and liability are recognized, but a single lease cost is recorded over the term.
Lease Criteria: A lease is generally a finance lease if it meets one of five criteria, including if the present value of lease payments exceeds 90% of the fair value of the asset.
Initial Measurement: Lease liability is the present value of future payments. ROU asset is the liability + prepaid rent + initial direct costs - lease incentives. 

Pensions
Shift in Focus: CPA Exam questions primarily cover the pension plan's financial statements as a separate entity rather than the employer's calculation of pension expense (net periodic pension cost). 

Accounting Changes and Error Correction
Change in Principle: Examples include changing from LIFO to FIFO or a change in depreciation method. Requires retrospective application (restate prior years).
Change in Estimate: Examples include changes in useful lives or salvage values. Applied prospectively (current and future periods only).
Change in Entity: Requires restatement of all previous financial statements.
Correction of Error: Requires restatement of prior period financial statements. 

Key FAR Focus Areas
Lessee vs. Lessor: Know that while lessees have moved to a single model (mostly), lessors still classify leases as operating, direct financing, or sales-type.
Cash Flow Impact: Finance lease payments are divided into principal (financing) and interest (operating). Operating lease payments are usually operating cash flows.
Subsequent Measurement: ROU assets for operating leases are amortized to make the lease cost straight-line. 

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