Question

The Harris Company is the lessee on a four-year lease with the following payments at the end of each year Year 1: Year 2 Year 3: Year 4: $18,000 $23,000 $28,000 $33,000 An appropriate discount rate is 7 percentage, yielding a present value of $84,943. 1-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? Initial value of the right-of-use asset a-2. If the lease is an operating lease, what will be the initial value of the lease liability? Initial value of the lesse liability 2:3. If the lease is an operating lease, what will be the lease expense shown on the income statement at the end of year 1? Lease expense a:4. If the lease is an operating lease, what will be the interest expense shown on the income statement at the end of year 1? (Leave no cells blank-be certain to enter"0" wherever required.) Interest expense a-5. If the lease is an operating lease, what will be the amortization expense shown on the income statement at the end of year 1? (Leave no cells blank-be certain to enter "0" wherever required.) Amortization expense

Answer 1

1) initial value of the right of use asset = Year 1 + Year 2 + Year 3 Year 4 = $18,000 + $ 23,000 + $28,000 + $ 33,000 = $ 102,000 - $102,000 2) Initial value of lease liability = P10 = $ 102,000 1.07 = $ 84,943 3) Lease expense = $18,000 4) Interest expense = $0 5 Amortization expense = $0

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