On January 1, Year One, Landon Corporation decides to lease a truck for $20,000 per year...

On January 1, Year One, Landon Corporation decides to lease a truck for $20,000 per year for three years. The annual incremental borrowing rate for Landon is 10 percent. The truck has a life of five years. Landon cannot buy or obtain title to the truck. The present value of an annuity due of $1 for three years at an annual interest rate of 10 percent is $2.73554. At the last moment, Landon changes the contract to four years instead of three. No other changes are made. The present value of an annuity due of $1 for four years at an annual interest rate of 10 percent is $3.48685.

a. How did the change from three years to four years affect the expense to be reported by Landon

in Year One?

b. How did the change from three years to four years affect the expense to be reported by Landon

in Year Two?

c. After changing the contract to four years, what net book value will be shown for the leased truck

at the end of Year One?

d. After changing the contract to four years, what lease liability balance will be shown at the end of

Year One?

Expert Solution

ekkarill92 answered 2 years ago

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