Answer:
Effect on earnings | ($29,000) |
Lease payable balance (end of year) | $132,349 |
Right-of-use asset balance (end of year) | $161,349 |
Calculation:
Effect on the lease on café
So, first year, they make a payment of 29000, so decrease of 29,000 will be the effect
Lease payable balance at end of year
PV =PV(12%,9,29000,,1) or
PV = 29000 * 5.9676 = 173,061.55
Present Value of lease = 173,061.55
Then payment of 29,000 is deducted for end of year, so 173,061.55-29000 = 144,065.55
And 12% of 144,065.55 = 17,287.39 (interest)
Then deduct 29000, from 17,287.39 = - 11,712.61 (part of payment, which is principal)
Then, - 11,712.61-29000 = 40,712.614
Now, we have to take this amount away from 173,061.55
Hence, 173,061.55 - 40,712.614 = 132,349
In short, 173,061.55 - ((173,061.55-29000) *12%-29000)-29000 = 132,349
Lease payable balance at end of year = 132,349
Right of use
Right of use = 173,061.55 – 11,712.61 = 161,349
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