Answer: after inception, a single lease expense each year, which is a straight-line allocation of the cost of the lease over its term.

## 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

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