Question

Elliott Company leased a delivery truck with a fair value of $85,000 and an estimated useful life of 8 years from Larson Motors signing a five-year lease on December 30, 2017. The lease begins on January 1, 2018, and Elliott will return the truck to Larson at the conclusion of the lease on Dec 31, 2022. Elliott made an initial lease payment of $12,000 on January 1 of 2018, with the remaining lease payments of the same amount due on January 1 of the remaining four years. The implicit rate of interest on the lease is 4% and is known by Elliott. The lease doesn’t contain a purchase option, incentives, residual value guarantees, or a transfer of ownership and Elliott didn’t incur any initial direct costs related to the lease. Assuming this lease is correctly classified as an operating lease: What is the amount of the amortization of the right to use asset that will be recognized in 2019 (year 2)?

A. $10,258

B. $10,500

C. $10,668

D. $11,112

Answer 1

The answer is as follows

What is the amount of the amortization of the right to use asset that will be recognized in 2019 (year 2)?

D. $11,112

Working Notes

Year	Repayment amount	PV Factor @ 4%	Present Value
0	12,000.00	1.0000	12,000.00
1	12,000.00	0.9615	11,538.00
2	12,000.00	0.9246	11,095.20
3	12,000.00	0.8890	10,668.00
4	12,000.00	0.8548	10,257.60
Total Present Amount (A)			55,558.80
No of Year (B)			5.00
Amortization per Year (A/B)			11,111.76
Rounded to			11,112.00