Question

On January 1, 2019, ABC Company leased office equipment from ZZ, Inc. The lease terms require...

On January 1, 2019, ABC Company leased office equipment from ZZ, Inc.
The lease terms require annual payments of $20,000 for 20 years with
the first payment being due on December 31, 2019. The interest rate
on the lease is 5%, and ABC will use the double-declining balance
method to record the amortization of the leased asset. Assume the
equipment had a 25 year remaining useful life at January 1, 2019 and
the lease contract requires the equipment to be returned to ZZ, Inc.
at the end of the lease.

Calculate the amount of the lease liability balance at December 31, 2020
that would be classified as a current liability.

I got $8,312.85. Is that correct?

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Answer #1

Hi,

Your answer is correct. My answer comes to $8,310.09 which is approximately same as yours.

Description: Asset value arrived at $249,250 after discount the annual installments @ 5% for 20 yrs. Thus we arrive at the following schedule:

Due Dates Installment Principal Amount Interest
31.12.2019      20,000.00                    7,537.50    12,462.50
31.12.2020      20,000.00                    7,914.38    12,085.63
31.12.2021      20,000.00                    8,310.09    11,689.91

Since the Current Liability at the end of 31.12.2020 is $ 8,310.09 i.e Liability for next year, your answer is approximately correct.

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