Question

LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Wildhorse, Inc. for 3 years. The lease calls for annual lease payments of $21,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. This lease is properly classified as an operating lease. The credit to Lease Liability on December 31, 2020 is ________.

Answer 1

Answer:

interest expense 4,881.08 debit

    lease liability        4,881.08 credit

Explanation:

We solve for the present value of the lease payment and with that we solve forthe interest accrued during the period which will be interest expense debit and lease liability credit.

$C \times \frac{1-(1+r)^{-time} }{rate} = PV$  

C 21,300

time 3

rate 0.06

$21300 \times \frac{1-(1+0.06)^{-3} }{0.06} = PV$  

PV $60,351.2638  

lease: +60,351.26

less:    21,000.00 payment

           81,351.26 before interest

interest over the year 81,351.26 x 0.06 = 4,881.08

Missing Information: 6% implicit rate