Question

In: Accounting

Warrior Inc. leased a commercial generator from Portland Inc. on January 1, 2021 under a 2-year...

Warrior Inc. leased a commercial generator from Portland Inc. on January 1, 2021 under a 2-year operating lease. Quarterly payments of $21,000 are due at the beginning of each quarter with the first payment due on January 1, 2021. Portland purchased the generator from Magnum Corp. at a cost of $256,000, which is also its fair value. The economic life of the generator is 5 years and the interest rate implicit in the lease is 8%. Warrior records amortization every quarter.

What is the balance in the lease payable at July 1, 2021?

A.

$104,367
B.

$95,349
C.

$117,630
D.

$98,983

Solutions

Expert Solution

Period Lease Payment PV Factor @2% Present value
1                 21,000                           1             21,000
2                 21,000              0.98039             20,588
3                 21,000              0.96117             20,185
4                 21,000              0.94232             19,789
5                 21,000              0.92385             19,401
6                 21,000              0.90573             19,020
7                 21,000              0.88797             18,647
8                 21,000              0.87056             18,282
Total             168,000          156,912
Lease Liability on January 1,2021 156,912
Less: Payment on January 1,2021      21,000
Balance on January 1,2021 135,912
Interest Expense for 1st quarter        2,718 =135912*2%
Amount allocated to lease liability of April 1,2021 Payment      18,282 =21000-2718
Balance of lease liability after April 1,2021 Payment 117,630 =135912-18282
Interest Expense for 1st quarter        2,353 =117630*2%
Amount allocated to lease liability of July 1,2021 Payment      18,647 =21000-2353
Balance of lease liability after July 1,2021 Payment $ 98,983 =117630-18647
Correct answer is option D .

ekkarill92 answered 2 years ago
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