Question

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, 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 Outstanding Balance January. Year 1 January, Year 1 January, Year 2 < Required A Required B >

Answer 1

Dear Student ,

Below question based on Lease liability , amortization , Interest cost calculation .

While calculating lease liability - used Excel base PV formula ,, How tto use formula in excel === mentioned below .

Any issue , please drop me message

Thank You !!

A lease agreement that Qualify
as a financial lease- annual payment $				20,000
The internal rate of return				4%
Lease period				5 year
Present Value of Lease payment $				-PV(0.04,5,20000,,1)
Present Value of Lease payment $				92,598
( need to use excel base PV formula
as mentioned above )
Now see below table , relates to amortization of lease payment
Date	Lease payment$	Effective Interest $	Decrease in Balance $	Outstanding Balance $
Year 1-Jan				92,598	(as calculated above)
Year 1-Jan	20,000	0	20,000	72,598	($92598-$20000)
Year 2-Jan	20,000	2,903.92	17,096.08	55,502	($72598-$17096.08)
Effective Interest calculate == 4%* on Outstanding Balance Yea1 Jan $ 72598
Decrease in Balance == $ 20,000 less Interest $ 2903.92