Question

On December 31, 2014, Day Company leased a new machine from Parr with the following pertinent information:
Lease term .................. 6 years
Annual rental payable at beginning of each year . $50,000
Useful life of machine ............ 8 years
Day’s incremental borrowing rate ......... 15%
Implicit interest rate in lease (known by Day) .... 12%

The lease is not renewable, and the machine reverts to Parr at the termination of the lease. The cost of the machine on Parr’s accounting records is $375,500.

Required:
Compute the amount of Day’s lease liability at the beginning of the lease term.



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  • CreatedSeptember 10, 2014
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