Question

N Corp. entered into a nine-year finance lease on a warehouse on December 31, 2018. Lease payments of $31,000, which includes maintenance services of $1,900, are due annually, beginning on December 31, 2019, and every December 31 thereafter. N Corp. does not know the interest rate implicit in the lease; N's incremental borrowing rate is 13%. The rounded present value of an ordinary annuity for nine years at 13% is 5. What amount should N report as recorded lease liability at December 31, 2018?

Answer 1

Answer:

$145,500

Explanation:

Lease payments on warehouse: $31,000

Maintenance Services: $1,900

Rounded present value of an ordinary annuity for nine years at 13%: 5.

The capitalized lease liability starting at 12/31/2018 (and for nine years at 13%) = ($31,000 - $1,900) x 5

= $ 29,100 x 5 = $145,500

N Corp should report $145,500 as recorded lease liability at December 31, 2018