Question

On June 30, Year 1, a company signs a lease requiring quarterly payments each year for the next five years. Each of the 20 quarterly payments is $29,122.87, with the first lease payment beginning September 30. The company's normal borrowing rate is 6%

Answer 1

Answer:

Step-by-step explanation:

The objective of this question is to find the present value of the lease payment and record the lease on June 30, Year 1.

Given that:

The lease requires quarterly payment.

Borrowing rate = 6%

∴

The quarterly interest rate = $6\% \times \dfrac{1}{4}$

The quarterly interest rate = 1.50%

Now, the present value for the lease payment can be calculated as:

= $29,122.87 × PV(1.5%,20)

= $29,122.87 × 17.16864

= $500000.071

≅ $500,000     (to the nearest whole dollar amount)

The Journal entries:

No.      Date              Account title           Debit             Credit

1           June 30       Lease assets        $500,000

                                Lease Payable                              $500,000

                              (To record lease

                               Payable)