On January 1, 2017, Marlene Corp. enters into an agreement
with Dietrich Rentals Inc. to lease a machine from them. Both
corporations adhere to ASPE. The following data relate to the
1. The term of the non-cancellable lease is three years with
no renewal option. Payments of
$271,622 are due on December 31 of each year.
2. The fair value of the machine on January 1, 2017, is
$700,000. The machine has a
remaining economic life of 10 years, with no residual value.
The machine reverts to the lessor upon the termination of the
3. Marlene depreciates all its machinery on a straight-line
4. Marlene's incremental borrowing rate is 10%. Marlene does
not have knowledge of the 8%
implicit rate used by Dietrich.
5. Immediately after signing the lease, Dietrich discovers
that Marlene is the defendant in a lawsuit that is sufficiently
material to make collectibility of future lease payments
Assume the present value of the lease payments is $700,000 at
January 1, 2017.
If Marlene accounts for this lease as a finance lease, what is
the amount of the reduction in the lease obligation in calendar
2018? (Round to the nearest dollar.)