On January 1, 2018, Packard Corporation leased equipment to Hewlitt Company. The lease term is eight...

On January 1, 2018, Packard Corporation leased equipment to Hewlitt Company. The lease term is eight years. The first payment of $450,000 was made on January 1, 2018. Remaining payments are made on December 31 each year, beginning with December 31, 2018. The equipment cost Packard Corporation $2,400,000. The present value of the lease payments is $2,640,788. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, what will be the balance reported as a liability by Hewlitt in the December 31, 2019, balance sheet?

a- $1,950,867

b- $1,509,854

c- $1,959,867

d- $1,705,854

Solutions

Expert Solution

Date	Annual payment	Interest expense 10%	Reduction in lease liability	Lease liability
January 1, 2018				2640788
January 1, 2018	450000	0	450000	2190788
December 31, 2018	450000	219079	230921	1959867
December 31, 2019	450000	195987	254013	1705854

Option D $1,705,854 is correct

ekkarill92 answered 1 year ago

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