Question

Arena Corp. leased equipment from Bolton Corp. and correctly classified the lease as a finance lease. The present value of the annual lease payments at lease inception was $1,000,000. The present value of the maintenance and service obligations to be paid by Bolton was $50,000, and the fair value of the equipment at lease inception was $900,000. What amount should Arena report as the finance lease obligation at the lease's inception?

Answer 1

Answer:

The correct answer is $900,000

Explanation:

Arena Corp. should record the asset and the lease obligation at the lower of the fair value of the asset at the inception of the lease.

In this case, The fair value is $900,000 and its precise amount to record. Keep in mind that Executory costs aren´t included in the lease obligation.