Question

Riverbed Corporation entered into an operating lease to lease equipment from Highlander, Inc. on January 1, 2020. The lease calls for annual lease payments of $9,000, beginning on December 31, for each of the 5 years of the lease. In addition, Highlander, Inc. will pay Riverbed Corporation $2,000 as a cash incentive for entering the lease by December 31. In relation to the lease agreement, Riverbed incurred the following costs. Commissions for selling agents $600 Internal engineering costs 500 Legal fees resulting from the execution of the lease 4,000 Riverbed’s incremental borrowing rate is 4%. If the value of the lease liability is $41,669, what amount will Riverbed record as the value of the right-of-use asset on January 1, 2020, at commencement of the operating lease?

Answer 1

Right to use asset at the brggining of operating lease is $44,769

Calculation of Right to Use Asset

Particulars	Amount
Initial amount of lease liability	$       41,669.00
Add: Commission for selling agent	$             600.00
Internal engineering cost (Direct cost)	$             500.00
Legal fees	4,000
Less : Incentive received	$        -2,000.00
Right to Use Asset	$       44,769.00