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Lesson details
- Estimated study time
- 150 min
Learning objectives (3)
Cedar Trail's draft note reports $3.8 million of future payments and $3.8 million of lease liabilities. Its schedule reports $3.3 million. The note calls the difference a rounding item.
It is imputed interest.
The release bridge must make that diagnosis reproducible: $3.8 million of undiscounted payments less $0.5 million of imputed interest equals the $3.3 million recognized liability. Those rounded case totals are navigation cues; the contract-level maturity workpaper performs the exact present-value tie.
Build the lessee release bridge
Tie opening ROU assets and liabilities, noncash additions, cash paid, interest, amortization or operating ROU reduction, modifications, impairments, and ending balances by classification. Support current liabilities from next-period principal and reconcile total finance and operating amounts to the balance sheet.
Start with a closed liability loop. Cedar Trail's $3.10 million is the prior-period recorded liability; it is a different population measure from the current undiscounted $3.8 million maturity total used in the opening diagnosis. The aggregate diagnostic bridge uses the following rounded case totals; the release workpaper repeats the same logic separately for finance and operating populations at full precision:
| Measure | Role in the release bridge | Rounded amount |
|---|---|---|
| Opening liability | Prior-period recorded balance | $3.10 million |
| Noncash additions | New recognized rights and obligations | $0.60 million |
| Interest accretion | Effective-interest increase | $0.18 million |
| Cash payments | Contractual cash reduction | $(0.58) million |
| Ending liability | Balance-sheet and subledger control | $3.30 million |
| Undiscounted maturities | Future contractual payments | $3.80 million |
| Imputed interest | Maturity-to-liability difference | $(0.50) million |
The ROU rollforward has different components and does not borrow the liability answer. Trace additions, amortization or operating ROU reduction, impairment, and disposals from its own ending support back to the ledger.
Disclose components of finance and operating cost, variable and short-term cost, sublease income where applicable, cash paid, and noncash ROU additions. Keep finance principal, finance interest, operating payments, and commencement noncash activity in their correct cash-flow lanes.
Reconcile maturities to present value
List undiscounted payments for the required annual periods and remainder. Subtract imputed interest to reach recognized liability. A maturity schedule that equals the liability has probably mixed discounted and undiscounted amounts: Cedar Trail's $3.8 million maturity total must lose $0.5 million of imputed interest to reach the same $3.3 million liability.
Read the portfolio metrics with their population
Reperform weighted-average remaining term and discount rate from the same finance or operating population and weighting convention. Compare with prior period only after acquisitions, term reassessments, modifications, and scope changes are explained.
For a separate small-portfolio illustration, suppose an approved convention weights $220,000 of lease liabilities measured at 6 percent and $80,000 measured at 4 percent. This is not Cedar Trail's case population. The supplied illustration produces a 5.4667-percent weighted rate:
($220,000 × 6% + $80,000 × 4%) ÷ $300,000 = 5.4667%
Use the entity's documented population and weighting convention; the example does not prescribe one for every filer.
The weighted-average lease rate summarizes the contractual discount rates in the recognized lease population using the disclosed weighting convention. It is not WACC, which combines the entity's broader debt and equity financing costs. The remaining lease term likewise summarizes the recognized lease term; it is not a forecast of how long facilities will be used when renewal options remain outside that term.
Build the lessor release bridge
Tie commencement profit or loss, interest income, operating lease income, variable income, net-investment components, retained PP&E, residual exposure, and separate maturity schedules. Explain significant changes in unguaranteed residual assets and direct-financing deferred profit.
Release only an evidence-backed note
The note must describe the nature of leases, variable terms, options, significant judgments, practical expedients, related-party matters, and residual-risk management at a useful level of disaggregation. Arithmetic ties do not prove that boilerplate describes the actual contracts.
Exit check
Finish the case release checklist. Every statement and note amount needs a schedule owner; every significant judgment needs a contract or memo; every unresolved difference stays on the exception register rather than becoming a plug.