Question

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2021. The manufacturing cost of the computers was $18 million.
  
This noncancelable lease had the following terms:

• Lease payments: $3,035,786 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025.
• Lease term: 5 years (10 semiannual payments).
• No residual value; no purchase option.
• Economic life of equipment: 5 years.
• Implicit interest rate and lessee's incremental borrowing rate: 8% semiannually.
• Fair value of the computers at January 1, 2021: $22 million.

  
What is the outstanding balance of the lease liability in Lone Star's June 30, 2021, balance sheet? (Round your answer to the nearest whole dollar.)

• $17,445,565.

• $16,845,574.

• $22,000,000.

• none

Answer 1

	17,445,565
	The lease liability in Lone Star's June 30, 2021, balance sheet			17,445,565
	(22,000,0000 - 3,035,786 - 1,518,649)
Date	Accounts Titles and Explanation	Debit	Credit
1/1/21	Leased Equipment	22,000,000
	Lease Liability		22,000,000
	(To record the lease)
1/1/21	Lease Liability	3,035,786
	Cash		3,035,786
	(To record first lease payment)
06/30/21	Interest Expense	1,517,137		(22,000,000 - 3,035,786) x 8%
	Lease Liability	1,518,649
	Cash		3,035,786
	(To record interest expense)