Question

Chapter 15 Homework i Saved Help Save & Exit Submit Brief Exercise 15-5 (Algo) Finance lease lessee income statement effects (LO15-2] 2 A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a five-year lease term (also the asset's useful life), with the first payment at January 1, 2021, the beginning of the lease. The interest rate is 5%. (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.) 2. points Required: a. Determine the present value of the lease upon the lease's inception. b. Create a partial amortization table through the second payment on January 1, 2022. c. If the lessee's fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the year ended December 31, 2021 (ignore taxes)? eBook Reference Complete this question by entering your answers in the tabs below. Required Required Required A B с

Answer 1

Solution a:

Present value of lease = $20,000 * Cumulative PV factor at 5% for 5 periods of annuity due

= $20,000 * 4.54595 = $90,919

Solution b:

Amortization Table
Date	Lease payment	Interest	Reduction in lease liability	Lease Liability
1-Jan-21				$90,919
1-Jan-21	$20,000	$0	$20,000	$70,919
1-Jan-22	$20,000	$3,546	$16,454	$54,465

Solution c:

Pretax amount related to lease to be reported in income statement:

Interest expense = $3,546

Amortization expense = $90,919 / 5 = $18,184

Total expense = $3,546 + $18,184 = $21,730