On January 1, Year 1, Lester Brown Inc. (LBI) leased a new excavator from Double J Corp.
Question:
On January 1, Year 1, Lester Brown Inc. (LBI) leased a new excavator from Double J Corp. The fair market value of the excavator on January 1, Year 1, is $490,000. Relevant details regarding the lease agreement are as follows: The lease agreement is for 12 years. Annual payments of $55,000 are due at the beginning of each year, starting January 1, Year 1. Included in the annual payments are maintenance fees of $5,000. The implicit rate is 6% and the IBR is 6.5%. The equipment has an estimated useful life of 14 years. Both LBI and Double J Corp. report under ASPE. LBI has determined that this is a capital lease. What is the balance of the lease liability for LBI at the end of December 31, Year 1?
$394,344
$418,005
$409,442
$459,805
Financial Accounting
ISBN: 978-0470507018
7th Edition
Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso