Question

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

Answer 1

Answer:

$1,000,000

Explanation:

The Amount to be reported as  lease liability must depict the present value of future cash outflows required to be paid as the entity enjoys its right to use the asset.

Thus, the present value of the minimum lease payments at lease inception was $1,000,000 represents the amount of lease liability.