Financial Accounting and Reporting-CPA Practice Exam

In calculating the present value of minimum lease payments, executory costs such as insurance and maintenance should be excluded. These costs are considered ancillary or operational and do not represent guaranteed payments to the lessor. The focus is on predetermined payments that constitute the actual lease liability.

Guaranteed residual value, required lease payments, and bargain purchase options are integral to determining the minimum lease payments and thus play a role in the present value calculation. Guaranteed residual value provides assurance to the lessor about the asset's value at the end of the lease, and required lease payments are the contractual obligations that form the basis of the payment calculations. Furthermore, a bargain purchase option allows the lessee to purchase the asset at a price significantly below fair market value, which can also affect the liability recognized in the lease.

By excluding executory costs, the calculation remains focused on the present value of payments that are directly tied to the lease agreement, providing a clearer picture of the financial commitment involved in the lease.