17
sked out of
Botanic Choice signs an agreement on January 1, 2019, to lease equipment to Famous Furniture. The
following information relates to this agreement.
. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated
economic life of 6 years.
• The fair value of the equipment on January 1, 2019, is € 40,000.
• The asset will revert to the lessor at the end of the lease the term, at which time the asset is expected to
have a residual value of £6,000, none of which is guaranteed.
• The agreement requires equal annual rental payments of € 9,538.39 to the lessor, beginning on
December 31, 2019.
• The lessee's implicit rate is 8 %. Present value of an ordinary annuity of $1 for number of periods = 4,
interest 8% equals 3.31213.
What is the balance of lease liability (noncurrent) on December 31, 2019?
Select one:
a. €31.592.39
b. €17,009.51
€24.581.39
d. 22053.99

Question

04-06-2022
Business

Answered

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17
sked out of
Botanic Choice signs an agreement on January 1, 2019, to lease equipment to Famous Furniture. The
following information relates to this agreement.
. The term of the non-cancelable lease is 4 years with no renewal option. The equipment has an estimated
economic life of 6 years.
• The fair value of the equipment on January 1, 2019, is € 40,000.
• The asset will revert to the lessor at the end of the lease the term, at which time the asset is expected to
have a residual value of £6,000, none of which is guaranteed.
• The agreement requires equal annual rental payments of € 9,538.39 to the lessor, beginning on
December 31, 2019.
• The lessee's implicit rate is 8 %. Present value of an ordinary annuity of $1 for number of periods = 4,
interest 8% equals 3.31213.
What is the balance of lease liability (noncurrent) on December 31, 2019?
Select one:
a. €31.592.39
b. €17,009.51
€24.581.39
d. 22053.99

Sagot :

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VidyaaTech2022 VidyaaTech2022 · Answer 1 · 2022-06-15T01:46:06-04:00

The balance of lease liability on December 31, 2019, is equal to €31,592.39.

Option A is the correct answer.

What is a lease?

A lease is a contract where the owner of the asset permits the other party to utilize the asset for a specified period of time. The owner receives some consideration for that use.

Given values:

Yearly rental payment: € 9,538.39

PV annuity factor of 8% at 4 years: 3.31213

Computation of lease liability balance:

[tex]\rm\ Balance \rm\ of \rm\ Lease \rm\ Liability= \rm\ Yearly \rm\ Rentals \times\ \rm\ PV \rm\ Annuity \rm\ factor\\\rm\ Balance \rm\ of \rm\ Lease \rm\ Liability=\ 9,538.39 \times\ 3.31213\\\rm\ Balance \rm\ of \rm\ Lease \rm\ Liability=31,592.39[/tex]

Therefore, on December 31, 2019, the amount of lease liability comes our to be € 31,592.39.

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Sagot :

What is a lease?

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