Explanation

Under US GAAP (specifically ASC 842), for a long-term operating lease:

1. At inception: The lessee recognizes a right-of-use (ROU) asset and a lease liability on the balance sheet. The lease liability is calculated as the present value (not undiscounted value) of the fixed lease payments.

2. After inception: For operating leases, the lessee reports a single lease expense each period, which is allocated on a straight-line basis over the lease term. This single lease expense includes both the amortization of the ROU asset and the interest on the lease liability.

3. Statement of cash flows: For operating leases, the lease payments are reported as operating cash outflows (not split between financing and operating).

Let's analyze each option:

Option A: Incorrect. For operating leases under US GAAP, the entire lease payment is reported as an operating cash outflow, not split between financing and operating components.

Option B: Incorrect. While a right-of-use asset and lease liability are recognized at inception, the lease liability is calculated as the present value (discounted) of fixed lease payments, not the undiscounted value.

Option C: Correct. This accurately describes the expense recognition for operating leases under US GAAP - a single lease expense allocated on a straight-line basis over the lease term.

Key points to remember:

• Operating leases: Single straight-line lease expense
• Finance leases: Separate interest expense and amortization expense
• Both types of leases result in ROU assets and lease liabilities on the balance sheet
• Cash flow classification differs: operating leases = operating cash flows; finance leases = interest portion = operating, principal portion = financing