On December 31, 2007, Parks Co. leased a machine from Colt for a five-year perio

Question

On December 31, 2007, Parks Co. leased a machine from Colt for a five-year period. Equal annual payments under the lease are $210,000 (including $10,000 annual executor costs) are due on December 31 of each yar. The first payment was made on December 31, 2007, and the second payment was made on December 31, 2008. The five lease payments are discounted at 10% over the lease term. The present value of the minimum lease payments at the inception of the lease and before the first annual payment was $834,000. Parks appropriately accounts for the lease as a capital lease. In its December 31, 2008 balance sheet, Parks should report a lease liability of:
1) $497,400
2) $570,000
3) $624,000
4) $634,000
please show work and have the work that shows one of the answers above to recieve credit.

Explanation / Answer

Parks appropriately accounts for the lease as a capital lease. In its December 31, 2008 balance sheet, Parks should report a lease liability of: 1) $497,400 please show work and have the work that shows one of the answers above to recieve credit. Value as on December 31, 2007 $834,000 Less : First Payment made on December 31, 2007 $200,000 Balance as on January 01, 2008 $634,000 Add: Interest for the year 2008 $ 63,400 Total Outstanding $697,400 Less: Payment made on December 31, 2008 $200,000 Net Outstanding as on December 31, 2008 $497,400 ========

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