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Marianna [84]
3 years ago
10

On December 30, Year 3, Ames Co. leased equipment under a finance lease for 10 years. It contracted to pay $40,000 annual rent o

n December 31, Year 3, and on December 31 of each of the next 9 years. The lease liability was recorded at $270,000 on December 30, Year 3, before the first payment. The equipment’s useful life is 12 years, and the interest rate implicit in the lease is 10%. In recording the December 31, Year 4, payment, by what amount should Ames reduce the lease liability?
Business
1 answer:
liraira [26]3 years ago
6 0

Answer:

Ames should reduce the lease liability by $17,000

Explanation:

There are two components of lease payment:

  1. Interest expense
  2. Amount paid against lease obligation.

Annual Lease = $40,000

Carrying amount at the beginning of the period = ( $270,000 – $40,000 ) = $230,000

Interest is calculated by multiplying the carrying amount with annual interest rate.

Interest expense  = $230,000 x 10% = $23,000

Reduction in liability is the net of Lease payment and Interest expense for the period.

Reduction in lease liability = $40,000 - $23,000 = $17,000

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How often should a system demo occur?
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1 year ago
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