Question

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

Payment			Cash Payment	Effective Interest			Decrease in balance			Outstanding Balance
											63,282
	1		10,000		0			10,000			53,282
	2		10,000		6,394			3,606			49,676
	3		10,000		5,961			4,039			45,638
	4		10,000		5,477			4,523			41,114
	5		10,000		4,934			5,066			36,048
	6		10,000		4,326			5,674			30,373
	7		10,000		3,645			6,355			24,018
	8		10,000		2,882			7,118			16,901
	9		10,000		?			?			?
	10		10,000		?			?			?

What amount would the lessee record as annual amortization on the right-of-use asset using the straight-line method?

Answer 1

Solution:

annual amortization on the right-of-use asset using the straight-line method to be recorded by lessee = Present value of lease payments / Period of lease

= $63,282 / 10 = $6,328