Question

13.. Francisco leased equipment from Julio on December 31, 2021. The lease is a 10-year lease with annual payments of $150,000 due on December 31 of each year beginning December 31, 2021. The present value of the lease payments is $1,013,854. Francisco's incremental borrowing rate is 12% for this type of lease. The implicit rate of 10% is known by the lessee. What should be the balance in Francisco lease liability at December 31, 2022

Answer 1

Answer:

$800,239.40

Explanation:

Calculation for the balance in Francisco lease liability at December 31, 2022

First step is to find the Liability for the year end 31st December 2021

Using this formula

Liability as on 31st December 2021=Initial Value of the Liability - Annual Payment

Let plug in the formula

31st December 2021 Liability =$1,013,854-$150,000

Liability as of 31st December 2021=$863,854

Second step is to find Interest for the Year 2022

Interest =$863,854×10%

Interest =$86,385.40

Third step is to less the interest amount from the Annual payment

Annual Payment $150,000- Interest $86,385.40

=$63,614.60

Last step is to find the balance in the lease liability at December 31, 2022

Lease liability balance = $863,854 -$63,614.60

Lease liability balance=$800,239.40

Therefore What should be the balance in Francisco lease liability at December 31, 2022 will be $800,239.40