Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-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 7%. (FV of $1 PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) points eBook Required: a. 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? Print Complete this question by entering your answers in the tabs below. Required A Required B If the lessee's fiscal year is the calendar year, what would be the amount of the lease its balance sheet at the end of the first year? What would be the interest payable? (ROU dollar.) Lease liability Interest payable Required A

Answer 1

a. PVAD 7%, n=4 = [ { 1 - ( 1 / 1+r) ⁿ } / r ] x ( 1 + r) = [ { 1 - ( 1 / 1.07) ⁴ } / 0.07 ] x 1.07 = 3.62432

Present value of the minimum lease payments = Annual lease payments x PVA 7%, 4 years x ( 1 + 0.07 ) = $ 50,000 x 3.6243 = $ 181,215

Amortization Schedule:

Year	Annual Lease Payment	Interest Expense	Reduction in Lease Liability	Carrying Value of Lease Liability
	$	$	$	$
0				181,215
1	50,000	-	50,000	131,215
2	50,000	9,185 ( $ 131,215 x 7%)	40,815	90,400
3	50,000	6,328	43,672	46,728
4	50,000	3,272	46,728	-

b. Lease liability to be reported in the balance sheet at the end of the first year : $ 131,215

Interest payable: $ 9,185