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On January 1, 2019, Lessee Company entered into a five-year lease which required annual payments of...

On January 1, 2019, Lessee Company entered into a five-year lease which required annual payments of $120,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments to initially record the lease was $500,384; the applicable discount rate was 10%. Lessee Company treated the lease as a finance lease under ASC 842. What is the balance of Lessee Company’s lease liability immediately after the January 1, 2020 payment was made?

Multiple Choice

  • $260,384

  • $298,422

  • $430,422

  • $380,384

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Answer #1

Solution:

Carrying value on 1-jan-2019 after first payment = $500384 - $120000 = $380,384

Interest for 2019 = $38038

lease liability immediately after the January 1, 2020  Payment = $380,384 +$38038 - $120000 = $298,422

Hence second option is correct.

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