Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a eight year lease term (also the asset's useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 4%. (FV of $1. PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD OF S1) (Use appropriate factor(s) from the tables provided.) Required: o. Complete the amortization schedule for the first two payments. b. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? Complete this question by entering your answers in the tabs below. Required B Required A Recluired B If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? (Round your answers to the nearest whole dollar) Lease liability Interest payable < Required A Required

Answer 1

Solution A:

Present value of lease payments = $20,000 * Cumulative PV factor at 4% for 8 periods of annuity due

= $20,000 * 7.00205 = $140,041

Lease Amortization schedule
Date	Annual lease payment	Interest on liability	Reduction of lease liability	Lease liability
Jan 1, 1st year				$140,041
Jan 1, 1st year	$20,000	$0	$20,000	$120,041
Jan 1, 2nd year	$20,000	$4,802	$15,198	$104,843

Solution B:

Lease liability that lessee would report at the end of first year = $120,041

Interest payable = $4,802