Question

In: Accounting

On January 1, 2017, Beard Company purchased a machine for $800,000. The machine is expected to...

On January 1, 2017, Beard Company purchased a machine for $800,000. The machine is expected to have a 10-year life and no residual value. On January 1, 2017, it leased the machine to Ajax Company for a three-year period at an annual rental of $200,000 to be paid at the end of each year. The lease has an implicit interest rate of 8%. Ajax has adopted early the provisions of ASC 842 on January 1, 2017.
What's the initial value of the lease liability for Ajax, rounded to the nearest dollar?
Group of answer choices390,994
635,066
515,419
0
600,000
What's the value of the lease liability at the end of 2017, rounded to the nearest dollar?
Group of answer choices342,936
356,653
400,000
274,004
0

Solutions

Expert Solution

Initial value of lease liability as on January 1,2017=515419

Calculations for same:-

Year Lease Rentals p.a Discounting factor @ 8% Present value of lease rentals
1 200000 0.925925926                                  1,85,185
2 200000 0.85733882                                  1,71,468
3 200000 0.793832241                                  1,58,766
Present value of lease liability as on January 1,2017                                  5,15,419

Value of lease liability at the end of 2017=356653

Calculations for same:-

Amortization table:-
Year Opening lease Liability Interest @ 8% Repayment Closing lease liability
1                       5,15,419                  41,234                           2,00,000                                  3,56,653
2                       3,56,653                  28,532                           2,00,000                                  1,85,185
3                       1,85,185                  14,815                           2,00,000                                            -  

ekkarill92 answered 2 years ago
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