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A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000...

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Accounting

A lease agreement that qualifies as a finance lease calls forannual lease payments of $20,000 over a five-year lease term (alsothe asset’s useful life), with the first payment at January 1, thebeginning of the lease. The interest rate is 4%. (FV of $1, PV of$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.) Required: a.Complete the amortization schedule for the first two payments. b.If the lessee’s fiscal year is the calendar year, what would be theamount of the lease liability that the lessee would report in itsbalance sheet at the end of the first year? What would be theinterest payable?

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4.1 Ratings (727 Votes)

a] Value of lease liability at inception = 20000*4.62990 = $                 92,598
AMORTIZATION TABLE
Date Interest Lease payment Amortization Lease Liability
Inception of lease $                 92,598
" $                20,000 $                          -   $                 72,598
EOY
1 $                 2,904 $                20,000 $                 17,096 $                 55,502
2 $                 2,220 $                20,000 $                 17,780 $                 37,722
3 $                 1,509 $                20,000 $                 18,491 $                 19,231
4 $                     769 $                20,000 $                 19,231 $                           0
b] Lease liability at the end of the 1st year = $                 72,598
Interest payable = $                   2,904

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