On January 1, 2019 (lease inception date). Tofootles Company leases a piece of equipment from ABC Leasing
Question:
On January 1, 2019 (lease inception date). Tofootles Company leases a piece of equipment from ABC Leasing Company. The lease term is for 4 years with the first payment of $1,000 due on January 1, 2019. The remaining three payments of $1,000 each are due on January 1, 2020, 2021, and 2022. In addition to the $1,000 base annual payment, the lease contract specifics an annual adjustment that is $50 for every point that the Consumer Price Index is above 250. The CPI on January 1, 2019, was 250. However, the annual adjustment is limited to a 2% increase. The implicit rate (known by the lessee) in the lease is 8%. Using Topic 842 in the Codification for support as necessary, determine the present value of the lease payments.
Step by Step Answer:
Intermediate Accounting
ISBN: 978-0134730370
2nd edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella