Question

# Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018....

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2018. The manufacturing cost of the computers was \$19 million.

This noncancelable lease had the following terms:

• Lease payments: \$2,836,767 semiannually; first payment at January 1, 2018; remaining payments at June 30 and December 31 each year through June 30, 2022.
• Lease term: 5 years (10 semi-annual payments).
• No residual value; no purchase option.
• Economic life of equipment: 5 years.
• Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually.
• Fair value of the computers at January 1, 2018: \$23 million.

What is the outstanding balance of the lease liability in Lone Star's June 30, 2018, balance sheet? (Round your answer to the nearest dollar.)

Multiple Choice

• None of these answer choices is correct.

• \$23,000,000.

• \$18,334,628.

• \$18,634,637.

First payment is made on Jan 1
Therefore Oustanding liability for calculation of Interest for 1st period = \$23,000,000 - \$2,836,767 = \$20,163,233
Interest for 6 months = \$20,163,233 x 5% = \$1,008,162

Payment towards lease liability = Lease payment - Interest for the period
= \$2,836,767 - \$1,008,162 = \$1,828,605

Therefore outstanding balance of the lease liability in Lone Star's June 30, 2018, balance sheet = \$20,163,233 - \$1,828,605

= \$18,334,628

#### Earn Coins

Coins can be redeemed for fabulous gifts.