On January 1, 2018, Betty DeRose, Inc. leased office furniture and equipment fro

Question

 On January 1, 2018, Betty DeRose, Inc. leased office furniture and equipment from Young Leasing Company. The terms of the lease require annual payments of $50,000 for 10 years with the first payment being due on December 31, 2018. Assume the interest rate on the lease is 10% and the lease qualifies as a capital lease. Betty DeRose depreciates all assets using the double-declining balance method.  Calculate the amount of the lease balance liability at December 31, 2019 that would be classified as a long-term liability. Enter your answer with two places after the decimal point (i.e., 10,123.40). 

Explanation / Answer

Calculation of amount of lease liability to be booked at the start if the lease i.e. on Jan.1,2018 Year Lease payment Discount Factor @ 10% Present Values 2018 $50,000.00 0.9090909 $45,454.55 2019 $50,000.00 0.8264463 $41,322.31 2020 $50,000.00 0.7513148 $37,565.74 2021 $50,000.00 0.6830135 $34,150.67 2022 $50,000.00 0.6209213 $31,046.07 2023 $50,000.00 0.5644739 $28,223.70 2024 $50,000.00 0.5131581 $25,657.91 2025 $50,000.00 0.4665074 $23,325.37 2026 $50,000.00 0.4240976 $21,204.88 2027 $50,000.00 0.3855433 $19,277.16 Lease Liability $307,228.36 Calculation of amount of lease balance liability at December 31,2019 Date Yearly Payment Towards Interest Towards Lease liability Lease balance liability A B C D=B-C E Jan.1,2018 $307,228.36 31st Dec.2018 $50,000.00 $30,722.84 $19,277.16 $287,951.19 31st Dec.2019 $50,000.00 $28,795.12 $21,204.88 $266,746.31 The amount of lease balance liability that would be classified as a long term liability at Dec.31,2019 = $266,746.31

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