On December 31, 2014, Lang Corporation leased a ship from Fort Company for an ei

Question

On December 31, 2014, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2022. Equal annual payments of $300,000 are due on December 31 of each year, beginning with December 31, 2014. The lease is properly classified as a capital lease on Lang ‘s books. The present value at December 31, 2014 of the eight lease payments over the lease term discounted at 10% is $1,760,528. Assuming all payments are made on time, the amount that should be reported by Lang Corporation as the total obligation under capital leases on its December 31, 2015 balance sheet is

Explanation / Answer

The total obligation under capital lease for Lang corporation on December 31 2014= 1760528-300000 = 1460528

Note out of total liablity 300000 would have been paid on dec 31 2014 whch would contain no interest.

Now calculating obligation for 2015 dec 31st .

Annual payment = 300000

Interest paid on first annual payment = 300000*10% = 30000

So Principal amount repaid after first installment = 300000-30000 = 270000

Hence total obligation under capital leases on its December 31, 2014 balance sheet is $1460528 - 270000

= 1190528.

So answer is $1190528 has to recorded on 31st dec 2015.

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