Question

On January 1, 2020, Digital, Inc. leased heavy machinery from Young Leasing
Company. The terms of the lease require annual payments of $25,000 for 20
years beginning on December 31, 2020. The interest rate on the lease is 10%.
Assume the lease qualifies as a capital lease and Digital, Inc. employs the
double-declining balance method to depreciate its assets. 

Calculate the book value of the leased asset at December 31, 2022.

Use the time value of money factors posted in carmen to answer this question.
To access these factors, click modules and then scroll to week 12. Click on
the link labeled present & future value table factors. No credit will be
awarded for this question using a means other than these table factors to
answer this question.

Answer 1

The answer is given below.Thanks

Calculation of present value of total annual payments

lease type= capital lease

Annual Lease payment = $ 25000.00

interest rate = $ 10

lease term = 20 years

present value of total lease value = annuity value for 20 years@10%*$ 25000

8.1536*25000

$203,840

so in this total liability

first year ending balance

interest = $ 203840*10%= $ 20384

instalment= $ 25000

principle repayment = $ 4616

closing balance = $ 203840-$ 4616= $ 199224

Second year ending Balance as on December 31,2021

interest = $ 199224*10%= $ 19922.4

instalment= $ 25000

principle repayment = $ 5077.6

closing balance = $ 199224-$ 5077.6= $ 194146.4

so balance in the lease liability account on December 31,2021= $ 194146.4

Third year ending Balance as on December 31,2022

interest = $ 194146.4*10%= $ 19414.64

instalment= $ 25000

principle repayment = $ 5585.36

closing balance = $ 194146.64-$5585.36= $ 188561.28

so balance in the lease liability account on December 31,2022= $ 188561.28