Question

On December 31, 2020, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2026. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.

Reagan's lease amortization schedule appears below:

Dec. 31	Payments			Interest			Decrease in Balance			Outstanding Balance
2020										$	456,895
2020	$	89,100					$	89,100			367,795
2021	$	89,100		$	33,102			55,998			311,797
2022	$	89,100			28,062			61,038			250,758
2023	$	89,100			22,568			66,532			184,226
2024	$	89,100			16,580			72,520			111,707
2025	$	89,100			10,054			79,046			32,660
2026	$	35,600			2,939			32,661			0

What is the balance of the lease liability on Reagan's December 31, 2022, balance sheet (after the third lease payment is made)?

Multiple Choice

• a)$311,797.

• b)$222,697.

• c)$161,658.

• d)$250,758.

Answer 1

Balance of the lease liability on Reagan's December 31, 2022 after the third lease payment is made = $250,758

Option D $250,758 is correct