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A company needs construction equipment to complete a project over the next 20 months. The equipment costs $10,000. Instead of purchasing the equipment with a 12% note, the company leases the equipment with payments of $300 due at the end of each month. For what amount would the company record the lease liability at the beginning of the lease?.

Respuesta :

$5,414 amount would the company record the lease liability at the beginning of the lease.

The correct answer is $5414

Explanation and Format

Lease liability = monthly lease payment * Present value annuity (1%,20)

= 300 * ((1-(1.01)^-20)/.01)

= 300*18.04555

= $ 5414

Thus the correct answer is $ 5414

A lease liability is the present value-discounted financial obligation for the lease's required payments. The present value of the remaining lease payments over the lease term is used to determine the lease liability under ASC 842, IFRS 16, and GASB 87. On the balance sheet, the lessor lists the lease as an asset and the individual lease payments as income on the income and cash flow statements. They also have to take into account the asset's deterioration over time. The right-of-use (ROU) asset and lease liability associated with a lease will be listed on the balance sheet. The ROU asset denotes ownership of the asset under the lease contract, whereas the lease liability is the obligation to make payments over the lease's term.

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