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Francisco leased equipment from Julio on December 31, 2018. The lease is a 10-year lease with...

Francisco leased equipment from Julio on December 31, 2018. The lease is a 10-year lease with annual payments of $158,000 due on December 31 of each year beginning December 31, 2018. The present value of the lease payments is $1,130,000. Francisco's incremental borrowing rate is 12% for this type of lease. The implicit rate of 11% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2019?

Multiple Choice

  • $972,000.

  • $920,920.

  • $927,430.

  • $919,420.

Business   Accounting   
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Answer #1
$920,920
Initial liability $1,130,000
Payment Dec. 31, 2018         158,000
Liability Dec. 31, 2018         972,000
11%
Interest, 2019         106,920
Payment         158,000
Interest, 2019         106,920
Reduced balance           51,080
Liab. Dec. 31, 2018         972,000
Reduced balance           51,080
Liab. Dec. 31, 2019       920,920
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