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Answer questions 22-23 from the following information. On January 1, Lessee leases equipment with a useful...

Answer questions 22-23 from the following information.

On January 1, Lessee leases equipment with a useful life of 5 years for a three-year lease term. Payments of $35,000 are due at the beginning of each year. The incremental borrowing rate is 6%. The present value of the payments is $98,000.

  1. What is lease expense for the first year?
  2. What is the amortization of the ROU asset for the first year?

Solutions

Expert Solution

Date Opening Lease payment interest Clsoing
           98,000
           98,000                   35,000            3,780            66,780
22) Interest Expense = Present value of lease payments * incremental borrowing rate
= ($98000-$35000)*6% = $3780.
Lease payment for the first year = $35,000.
Total Lease Expense = 35000+3780 = $ 38780.
23) The reduction in the lease liability is $35000. Since the lease payment is made at the beginning of the year.
In the 2nd year, the lease reduction will be $35000-$3780 = $31,220.

ekkarill92 answered 2 years ago
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