Question

Francisco leased equipment from Julio on December 31, 2021. The lease is a 10-year lease with...

Francisco leased equipment from Julio on December 31, 2021. The lease is a 10-year lease with annual payments of $152,000 due on December 31 of each year beginning December 31, 2021. The present value of the lease payments is $1,063,278. Francisco's incremental borrowing rate is 11% for this type of lease. The implicit rate of 9% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2022?

Multiple Choice

  • $841,293.

  • $911,278.

  • $839,793.

  • $847,803.

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Answer #1

Answer:

  • The correct answer is $ 8,41,293 (Liability Dec ,31,2022 )

Explanation:

Particulars Amount Amount
Present value of the lease payments $ 10,63,278

Less:

Payment Dec 31,2021

 $ 1,52,000
Liability Dec 31 ,2021

$ 10,63,278 - $ 1,52,000

= $ 9,11,278

 $ 9,11,278
Implicate rate given 9%
Interest for 2022

$ 9,11,278 * 9/100

= $ 82,015

 $ 82,015
Payment Dec ,31,2021 $ 1,52,000

Less:

Interest 2022

 $ 82,015
Reduced balance

$ 1,52,000 - $ 82,015

= $ 69,985

 $ 69,985
Liability Dec 31,2021 $ 9,11,278

Less:

Reduced balance

 $ 69,985
Liability Dec 31,2022

$ 9,11,278 - $ 69,985

= $ 8,41,293

 $ 8,41,293
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