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Red Co. recorded a right-of-use asset of $145,000 in a 10-year finance lease. Payments of $23,598...

Red Co. recorded a right-of-use asset of $145,000 in a 10-year finance lease. Payments of $23,598 are made annually at the end of each year. The interest rate charged by the lessor was 10%. The balance in the lease payable after two years will be: (Round your final answer to nearest whole dollar.)

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Answer #1
The lessee should recognize the lease as an asset and a liability at the inception of financial lease
Recognition should be at an amount equal to Fair value of leased asset at inception of lease or present value of minimum lease payments whichever is lower
Present value of lease payments 145009.71 (Annual payment * PVF (10%,10yrs)
Fair value' 145000
Calculation of finance charges
Year Finance charge Payment Reduction in outstanding liability Outstanding liability
1st year beginning 145000
End of 1st year 14500 23598 9098 135902
End of 2nd year 13590 23598 10008 125894
Balance in lease payable after 2 years 125894
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