Question

Wilson Foods Corporation leased a commercial food processor on September 30, 2021. The five-year finance lease agreement calls for Wilson to make quarterly lease payments of $182,722, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2021. Wilson’s incremental borrowing rate is 12%. Wilson records amortization on a straight-line basis at the end of each fiscal year. Wilson recorded the lease as follows:

September 30, 2021
Right-of-use asset (calculated below)	2,800,000
Lease payable (calculated below)		2,800,000
Lease payable	182,722
Cash (first payment)		182,722

Calculation of the present value of lease payments

$182,722 × 15.3238* = $2,800,000 (rounded)

*Present value of an annuity due of $1: n = 20, i = 3%

Required:
What would be the pretax amounts related to the lease that Wilson would report in its statement of cash flows for the year ended December 31, 2021? (Cash outflows should be indicated by a minus sign. Do not round your intermediate calculations. Enter your answers in whole dollars.)

Answer 1

Amortisation Table
Period	Opening Balance	Repayment	Interest @3%	Closing Balance
2021-09-30	2800000	182722	78518.34	2695796.34
2021-12-31	2695796.34	182722	75392.2302	2588466.57
	Total	365444	153910.5702

Working of Principal and Interest portion of repayment:

Period	Principal Portion	Interest Portion	Lease Payment
2021-09-30	182722	0	182722
2021-12-31	104204	78518	182722
Total	286926	78518	365444

Statement of Cashflows for the year ended 31 dec 2021 (Extract)

Cashflow from Operating Activities:	Amount ($)
Interest Portion of Lease Payment	-78518
Cashflow from Investing Activities:
Cashflow from Financing Activities:
Principal Portion of Lease Payment	-286926
Net Cash outflow	-365444