Question

On December 31, 2007, Pool Corporation leased a ship from Renn Company for an eight-year period expiring December 30, 2015. Equal annual payments of $200,000 are due on December 31 of each year, beginning with December 31, 2007. The lease is properly classified as a capital lease on Pool's books. The present value at December 31, 2007 of the eight lease payments over the lease term discounted at 10% is $1,173,685. Assuming all payments are made on time, the amount that should be reported by Pool Corporation as the total obligation under capital leases on its December 31, 2008 balance sheet is

		$1,091,054.-A
		$1,000,159.-B
		$871,054.-C
		$1,200,000.-D

Answer 1

Lease amortization table will need to be prepared to determine capital lease obligation balance at end of 2008.
Year	Lease payment	Interest		Reduction in lease obligation		Lease obligation
						$1,173,685
31-Dec-07	$200,000	$0		$200,000	200000-0	$973,685
31-Dec-08	$200,000	$97,369	973685*10%	$102,632	200000-97369	$871,054
Thus, total lease obligation as on December 31, 2008 is $871,054