Question

Brief Exercise 15-5 (Algo) Finance lease lessee income statement effects [LO15-2] 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, 2021, the beginning of the lease. The interest rate is 8%. (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.) 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)? Complete this question by entering your answers in the tabs below. Required A Required B Required Determine the present value of the lease upon the lease's inception. (Round your answers to nearest whole number and round percentage answer to 1 decimal place.) PV factors based on Table or Calculator function: Lease Payment n = PV of Lease < Required A Required B >

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Answer 1

А Determination of present value of the lease upon lease inception PV factor based on Table or calculator function lease payment n 50000 4 i 8% PV of lease 178855 Working Year Present Value 0 Discount Factor @ 8% 1 0.925925 0.857338 0.793832 Lease payment $50,000 $50,000 $50,000 $50,000 1 2 50000 46296 42867 39692 178855 3 B Partial Amortization through the first payment on January 1, 2022. Decrease in Outstanding Date Lease Payment Effective interest Balance balance 1/1/2021 178855 1/1/2021 $50,000 $50,000 128855 1/1/2022 $50,000 10308 39692 89163 C Impact on pretax income related to lease Interest Expense 10308 Amortization expense (178855/4) 44714 Total Expenses 55022