Question

On January 1, 2021 Rastell Co signed a long term finance lease for an office building. The terms of the lease required Rastall to pay 16,000 annually beginning December 31, 2021 and continuing each year for 16 years. On January 1, 2021 the present value of the lease payments is 151, 146 discounted at the 7% interest rate implicit in the lease In Rastall’s December 31, 2021, balance sheet, the lease payable should be:

a. $109,200
b. $112,679
c. $221,000
d. $95,679

Answer 1

Answer:

$145,726

Explanation:

Note: The options to this question belongs to another question entirely and that is attached as picture. So, the correct answer is not among the 4 options

Interest expense = Present value of lease payment * Interest rate

Interest expense = $151,146 * 7%

Interest expense = $10,580.22

Particulars                                                                           Amount

Present value of lease payment                                       $151,146

Add: Interest expense                                                       $10.580

Less: Annual Payments                                                     ($16,000)

Lease Payable on December 31, 2021 Balance Sheet  $145,726