Question

Cullumber Ltd. entered into a lease on June 1, 2020. The lease term is six years and requires annual rental payments of $30,300 at the beginning of each year. Cullumber’s incremental borrowing rate is 5% and the rate implicit in the lease is 9%?

Answer 1

	The lessee should discount the lease payments using: The interest rate implicit in the lease, or.
	The lessee's incremental borrowing rate if the interest rate implicit in the lease cannot be determined.
	Period	Amount	Present value @9%
	0	$30,300	$30,300
	1	$30,300	$27,798
	2	$30,300	$25,503
	3	$30,300	$23,397
	4	$30,300	$21,465
	5	$30,300	$19,693
		Lease liability	$148,156
		Amortization table
		Opening balance	Cashflows	Interest	closing balance
		$148,156	$30,300	0	$117,856
		$117,856	$30,300	$10,607	$98,163
		$98,163	$30,300	$8,835	$76,698
		$76,698	$30,300	$6,903	$53,301
		$53,301	$30,300	$4,797	$27,798
		$27,798	$30,300	$2,502	$0