Question

BBB Leasing purchased a machine for $250,000 and leased it to Jack Tupp Auto Repair on...

BBB Leasing purchased a machine for $250,000 and leased it to Jack Tupp Auto Repair on January 1, 2018.

Lease description:
Quarterly rental payments $16,315 at beginning of each period
Lease term 5 years (20 quarters)
No residual value; no BPO
Economic life of machine 5 years
Implicit interest rate 12%
Fair value of asset $250,000


What is the balance in the lease payable account after the April 1, 2018, lease payment?

Business   Accounting   
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Homework Answers

Answer #1

Total lease liability = $250,000

Balance in lease payable account after first lease payment on January 1, 2018 = $250,000 - $16,315 = $233,685

Interest included in the lease payment made on April 1, 2018 = $233,685 x 12% x 1/4 = $7,010.55

Principal amount included in the lease payment made on April 1, 2018 = $16,315 - $7,010.55 = $9,304.45

Therefore,

Balance in lease payable account after April 1, 2018 lease payment = $233,685 - $9,304.45 = $224,380.60

Thus, the correct answer is $224,381 (rounded up).

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