r 15 Quiz Saved Help Save & E MC Qu. 80 N Corp. entered into a nine-year finance

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r 15 Quiz Saved Help Save & E MC Qu. 80 N Corp. entered into a nine-year finance lease on... N Corp. entered into a nine-year finance lease on a warehouse on December 31, 2018. Lease payments of $31,000, which includes maintenance services of $1,900, are due annually, beginning on December 31, 2019, and every December 31 thereafter. N Corp. does not know the interest rate implicit in the lease; N's incremental borrowing rate is 13%. The rounded present value of an ordinary annuity for nine years at 13% is 5. what amount should N report as recorded lease liability at December 31, 2018? Multiple Choice $261,900. $279,000. $155,000. K Prev13 of 14 Next > e to search ENG

Explanation / Answer

(1)Answer = 145500

The capitalized lease liability should be the annual lease payments less the executory cost (maintainance exp)times the present value factor for an ordinary annuity of 1 for nine years at 13%. The calculation would be: (31000 - 1900) × 5 = $145500.

(2) Annual ammortisation under straight line method:-

(Cost of asset – Residual value)/Life of asset

(125000 – 2200)/10 = 12280

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