Question

Leases

Best Bakers, Inc. enters into a lease for building space with the following terms:

Rental payment of $2,000 initial deposit and then $1,000 due at the end of each month for the first year, $1,200 due at the end of month for the second year and $1,500 due at the end of each month for the third year. There are a total of 37 payments , including the initial payment. The three year lease is classified as a “right of use” operating lease.

Determine the right of use assets and lease liability based on a discount to present value computation of the future cash flows. The appropriate discount rate is 8%.

Prepare an amortization table for the first year or all three years that shows the amortization of the liability using the effective interest method.

Based on the cash flows provided and the liability amortization table above , determine the amount of amortization for right of use asset for the first year of the lease.  

Answer 1

Interest rate	8.000%
Monthly rate	0.667%
Year	Payments	PV factor	PV
0	2,000	1.000	2,000.00
1	1,000	0.993	993.38
2	1,000	0.987	986.80
3	1,000	0.980	980.26
4	1,000	0.974	973.77
5	1,000	0.967	967.32
6	1,000	0.961	960.92
7	1,000	0.955	954.55
8	1,000	0.948	948.23
9	1,000	0.942	941.95
10	1,000	0.936	935.71
11	1,000	0.930	929.52
12	1,000	0.923	923.36
13	1,200	0.917	1,100.70
14	1,200	0.911	1,093.41
15	1,200	0.905	1,086.17
16	1,200	0.899	1,078.97
17	1,200	0.893	1,071.83
18	1,200	0.887	1,064.73
19	1,200	0.881	1,057.68
20	1,200	0.876	1,050.67
21	1,200	0.870	1,043.71
22	1,200	0.864	1,036.80
23	1,200	0.858	1,029.94
24	1,200	0.853	1,023.12
25	1,500	0.847	1,270.43
26	1,500	0.841	1,262.01
27	1,500	0.836	1,253.65
28	1,500	0.830	1,245.35
29	1,500	0.825	1,237.10
30	1,500	0.819	1,228.91
31	1,500	0.814	1,220.77
32	1,500	0.808	1,212.69
33	1,500	0.803	1,204.66
34	1,500	0.798	1,196.68
35	1,500	0.793	1,188.75
36	1,500	0.787	1,180.88
		Total	40,935.39
Total Right	40,935
AmortiZation Schedule
	Principal	Interest	Repayment	Outstanding
0	40,935	-	(2,000)	38,935
1	38,935	260	(1,000)	38,195
2	38,195	255	(1,000)	37,450
3	37,450	250	(1,000)	36,699
4	36,699	245	(1,000)	35,944
5	35,944	240	(1,000)	35,184
6	35,184	235	(1,000)	34,418
7	34,418	229	(1,000)	33,648
8	33,648	224	(1,000)	32,872
9	32,872	219	(1,000)	32,091
10	32,091	214	(1,000)	31,305
11	31,305	209	(1,000)	30,514
12	30,514	203	(1,000)	29,717
13	29,717	198	(1,200)	28,715
14	28,715	191	(1,200)	27,707
15	27,707	185	(1,200)	26,691
16	26,691	178	(1,200)	25,669
17	25,669	171	(1,200)	24,640
18	24,640	164	(1,200)	23,605
19	23,605	157	(1,200)	22,562
20	22,562	150	(1,200)	21,512
21	21,512	143	(1,200)	20,456
22	20,456	136	(1,200)	19,392
23	19,392	129	(1,200)	18,322
24	18,322	122	(1,200)	17,244
25	17,244	115	(1,500)	15,859
26	15,859	106	(1,500)	14,464
27	14,464	96	(1,500)	13,061
28	13,061	87	(1,500)	11,648
29	11,648	78	(1,500)	10,226
30	10,226	68	(1,500)	8,794
31	8,794	59	(1,500)	7,352
32	7,352	49	(1,500)	5,901
33	5,901	39	(1,500)	4,441
34	4,441	30	(1,500)	2,970
35	2,970	20	(1,500)	1,490
36	1,490	10	(1,500)	0