Question

Question: On January 1, 2018, Kay Company leased office furniture and equipment from Young Leasing Company....

On January 1, 2018, Kay Company leased office furniture and equipment
from Young Leasing Company. The terms of the lease require annual
payments of $25,000 for 20 years with the first payment being due on
December 31, 2018. Assume the interest rate on the lease is 10% and
the lease qualifies as a capital lease.

Use the time value of money factors posted in carmen to answer this
Future Value of a Lump-Sum 15% 1.5209 1.7490 2.0114 20% 1.7280 2.0736 2.4883 Cauw Periods 2% 3 1.0151 | 1.0202 1.0253 1.0304 1.0355 1.0407 1.0459 1.0511 1.0617 1.0777 16 1.0831 17 1.0885 1.0939 1.0994 1.1049 1.1104 1.1160 1.1216 1.1272 25 1.1328 60 1.3489 3% 1.0927 1.1255 1.1593 1.1941 1.2299 1.2668 1.3048 1.3439 1.4257 1.5580 1.6047 1.6529 1.7024 1.7535 1.8061 1.8603 1.9161 1.9736 2.0325 2.0938 5.8916 Rate of interest per period in percent 5% 6% 8% 9% 10% 12% 1.1576 1.1910 1.2597 1.2950 1.3310 1.4049 1.21551.2625 1.3605 1.4116 1.4641 1.5735 1.2783 1.3382 1.4693 1.5386 1.6105 1.7623 1.3401 1.4185 1.5869 1.6771 1.7716 1.9738 1.4071 1.5036 1.7138 1.8280 1.9487 2.2107 1.4775 1.5940 1.8510 1.9926 2.1436 2.4760 1.5513 1.6895 1.9990 2.1719 2.3579 2.7731 1.6289 1.7909 2.1589 2.3674 2.5938 3.1059 1.7959 2.0122 2.5182 2.8127 3.1384 3.8960 2.0789 2.3966 3.1722 3.6425 4.1773 5.4736 2.1829 2.5404 3.4259 3.9703 4.5950 6.1304 2.2920 2.6928 3.7000 4.3276 5.0545 6.8660 2.4066 2.8543 3.9960 4.7171 5.5599 7.6900 7 6900 2.5270 3.0256 4.3157 5.1417 6.11598.6128 2.6533 3.2071 4.6610 5.6044 6.7275 9.6463 2.7860 3.3996 5.0338 6.1088 7.4002 10.8038 2.9253 3.6035 5.4365 6.6586 8.1403 12.1003 3.0715 3.8197 5.8715 7.25798.9543 13.5523 3.2251 4.04896.3412 7.9111 9.8497 15.1786 3.3864 4.29196.8485 8.6231 10.8347 17.0001 18.6792 32.9877 101.257 176.031 304.482 897.597 2.6600 3.5832 3.0590 4.2998 3.51795.1598 4.0456 6.1917 5.3503 8.9161 8.1371 15.4070 9.3576 18.4884 10.7613 22.1861 123755 12.3755 26.6233 14.2318 31.9480 16.3665 38.3376 18.8215 46.0051 21.6447 55.2061 24.8915 66.2474 28.6252 79.4969 32.9190 95.3962 4383.99 56347.5 สสส Present Value of a Lump-Sum Periods 72% | 0.9852 0.9803 0.9754 0.9657 0.9609 0.9561 10 | 0.9514 0.9419 0.9279 0.9233 Rate of interest per period in percent 3% 5% 6% 8% 9% 10% 0.9151 0.8638 0.8396 0.7938 0.7722 0.7513 0.8885 0.8227 0.7920 0.7350 0.7084 0.6830 0.8626 0.7835 0.7473 0.6806 0.6499 0.6209 .6311 0.5963 0.5645 0.8131 0.7107 0.6651 0.5835 0.5470 0.5132 0.7894 0.6768 0.6274 0.5403 0.5019 0.4665 0.7664 0.6446 0.5919 0.5003 0.4604 0.4241 0.7441 0.6139 0.5584 0.4632 0.4224 0.3855 0.7014 0.5568 0.4970 0.3971 0.3555 0.3186 0.64190.4810 0.4173 0.3152 0.2745 0.2394 0.6232 0.4581 0.3937 0.2919 0.2519 0.2176 0.6050 0.4363 0.3714 0.2703 0.2311 0.1978 0.5874 0.4155 0.3503 0.2503 0.2120 0.1799 0.5703 0.3957 0.3305 0.2317 0.1945 0.1635 0.5537 0.3769 0.3118 0.2146 0.1784 0.1486 0.5375 0.35890.2942 0.1987 0.1637 0.1351 0.5219 0.3418 0.2775 0.18390.1502 0.1228 0.5067 0.3256 0.2618 0.1703 0.1378 0.1117 0.4920 0.3101 0.2470 0.1577 0.1264 0.1015 0.4776 0.2953 0.2330 0.1460 0.1160 0.0923 0.1697 0.0535 0.0303 0.0099 0.0057 0.0033 12% 0.7118 0.6355 0.5674 0.5066 0.4523 0.4039 0.3606 0.3220 0.2567 0.1827 0.1631 0.1456 0.1300 0.1161 0.1037 0.0926 0.0826 0.0738 0.0659 0.0588 0.0011 16 15% 0.6575 0.5718 0.4972 0.4323 0.3759 0.3269 0.2843 0.2472 0.1869 0.1229 0.1069 0.0929 0.0808 0.0703 0.0611 0.0531 0.0462 0.0402 0.0349 0.0304 0.0002 200 0.5787 0.4823 0.4019 0.3349 0.2791 0.2326 0.1938 0.1615 0.1122 0.0649 0.0541 0.0451 0.0376 0.0313 0.0261 0.0217 0.0181 0.0151 0.0126 0.0105 0.0001 18 0.9141 19 0.9096 0.9051 0.9006 0.8961 0.8917 0.8872 0.8828 | 0.7414

A)Calculate the lease liability account balance at December 31, 2019
after the second lease payment is made.

B) Calculate the amount of the lease liability at December 31, 2019 that would be classified as a long-term liability.

Answer 1

Annual Lease Rentals = $25,000

Lease period = 20 years

Interest rate on lease = 10%

Annuity factor of 10% for 20 years = 8.5200

PV of lease rentals = Annual lease payments * Annuity factor of 10% for 20 years

= $25,000 * 8.5200

= $213,000

AMORTIZATION SCHEDULE Beginning lease liability Interest @ 10% Lease Payment Closing Lease Liability Dec, 2018 $ 2,13,000.00 $ 21,300.00 $ 25,000.00 $ 2,09,300.00 Dec, 2019 $ 2,09,300.00 $ 20,930.00 $ 25,000.00 $ 2,05,230.00 Dec, 2020 $ 2,05,230.00 $ 20,523.00 $ 25,000.00 $ 2,00,753.00 Dec, 2021 $ 2,00,753.00 $ 20,075.30 $ 25,000.00 $ 1,95,828.30 Dec, 2022 $ 1,95,828.30 $ 19,582.83 $ 25,000.00 $ 1,90,411.13

(a) Balance of Lease Liability Account at December 31, 2019 is $205,230

(b) The liabilities that are payable after a period of one year from the date of closing of financial statements is classified as long term liability. Hence, Long tern liability as at December 31, 2019 is $200,753