Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a eight-year lease term (also the asset's useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 4%. (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. Complete the amortization schedule for the first two payments. b. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? Complete this question by entering your answers in the tabs below. Required A Required B Complete the amortization schedule for the first two payments. (Enter all amounts as positive values. Round your answers to the nearest whole dollar.) Date Lease Payment Effective Interest Decrease in Balance January, Year 1 January, Year 1 January, Year 2 Outstanding Balance $ 140,041 120,041 104,843 $ 0 $ 20,000 20,000 $ 20,000 4,802 15,198 < Required A Required B >
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Answer 1

	Present value of lease payment	$ 140,041	=20000*7.00205
	( Annual lease payment x Present value of annuity due for 8 years)
Req.A	Date	Lease Payment	Effective Interest	Decrease in Balance	Outstanding balance
			@ 4% of Outstanding bal.
		A	B	A-B
	January , Year 1				140,041
	January , Year 1	20,000	-	20,000	120,041
	January , Year 2	20,000	4,802	15,198	104,843
Req.B	Lease liability	$ 120,041	=140041-20000
	Interest Payable	$ 4,802