Question

N Corp. entered into a nine-year finance lease on a warehouse on December 31, 2021. Lease payments of $34,000, which includes maintenance services of $1,200, are due annually, beginning on December 31, 2022, and every December 31 thereafter. N Corp. does not know the interest rate implicit in the lease; N's incremental borrowing rate is 12%. The rounded present value of an ordinary annuity for nine years at 12% is 5.3282. What amount should N report as recorded lease liability at December 31, 2021

Answer 1

Answer:

$174,765

Explanation:

Calculation for the amount to be recorded as

lease liability at December 31, 2021

Using this formula

Lease liability =(Lease payments - Maintenance services) *Present value of an ordinary annuity

Let plug in the formula

Lease liability =($34,000-$1,200) *5.3282

Lease liability =$32,800*5.3282

Lease liability =$174,764.96 Approximately $174,765

Therefore the amount that should berecorded as lease liability at December 31, 2021 will be $174,765