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?

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).