Reynolds Construction (RC) needs a piece of equipment that costs
$180,000. The equipment has an economic life of 3 years and no
residual value. The equipment will not require maintenance because
its useful life is so short. RC can borrow the full cost of the
equipment at an interest rate of 6% with payments due at the end of
the year. Alternatively, RC can lease the equipment for $65,000
with payments due at the end of the year. Assume RC chooses the
lease, which is a finance lease for financial reporting purposes.
Answer the following questions. (Hint: See Table
19-1.)
- What is the initial lease liability that must be reported on
the balance sheet? Do not round intermediate calculations. Round
your answer to the nearest cent. Enter your answer as a positive
value.
$
- What is the initial right-of-use asset? Do not round
intermediate calculations. Round your answer to the nearest cent.
$
- What will RC report as an interest expense at Year 1? Round
your answer to the nearest cent. Enter your answer as a positive
value.
$
- What will RC report as an amortization expense at Year 1? Do
not round intermediate calculations. Round your answer to the
nearest cent. Enter your answer as a positive value.
$
- What will RC report as the lease liability at Year 1? Do not
round intermediate calculations. Round your answer to the nearest
cent. Enter your answer as a positive value.
$
- What will RC report as the right-of-use asset at Year 1? Do not
round intermediate calculations. Round your answer to the nearest
cent.
$