Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a five-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 4%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: a. Complete the amortization schedule for the first two payments. b. If the lessee’s fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable?

Answer 1

a]	Value of lease liability at inception = 20000*4.62990 =			$                 92,598
	AMORTIZATION TABLE
	Date	Interest	Lease payment	Amortization	Lease Liability
	Inception of lease				$                 92,598
	"		$                20,000	$                          -	$                 72,598
	EOY
	1	$                 2,904	$                20,000	$                 17,096	$                 55,502
	2	$                 2,220	$                20,000	$                 17,780	$                 37,722
	3	$                 1,509	$                20,000	$                 18,491	$                 19,231
	4	$                     769	$                20,000	$                 19,231	$                           0
b]	Lease liability at the end of the 1st year =			$                 72,598
	Interest payable =			$                   2,904