Solution 1:
Right to use assets = Present value of lease payments
= $27,000 * cumulative PV factor for annuity due at 10% for 9 periods
= $27,000 * 6.33493 = $171,043
Interest expense for first year = ($171,043 - $27,000) * 10% = $14,404
Amortization for the year = $27,000 - $14,404 = $12,596
Effect on earnings for first year = Interest expense + Amortization expense = -$14,404 - $12,596 = ($27,000)
Solution 2:
Lease payable balance (End of year) = beginning balance + Interest expense - Payments
= $171,043 + $14,404 - $27,000 - $27,000 = $131,447
Right of use asset balance (end of year) = Begininnig balance - Amortization
= $171,043 - $12,596 = $158,447
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