Answer:
Solution 1:
Right to use assets = Present value of lease payments
= $20000 * cumulative PV factor for annuity due at 8% for 9 periods
= $20000 * 6.7466 = $134,932
Interest expense for first year = ($134,932 - $20,000) * 8% = $9,194.56
Amortization for the year = $134,932/ 9 = $14,992.4
Effect on earnings for first year = Interest expense + Amortization expense = -$9194.56 - $14992.4 = ($24186.96)
Solution 2:
Lease payable balance (End of year) = beginning balance + Interest expense - Payments
= $134932+ $9194.56- $20000- $20000= $104126.56
Right of use asset balance (end of year) = Beginning balance - Amortization
= $134932- $14992.4 = $119939.6
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