Question

BBB Leasing purchased a machine for $390,000 and leased it to Jack Tupp Auto Repair on January 1, 2021. Lease description: Quarterly rental payments $24,408 at beginning of each period Lease term 5 years (20 quarters) No residual value; no BPO Economic life of machine 5 years Implicit interest rate 10% Fair value of asset $390,000 What is the balance in the lease payable account after the April 1, 2021, lease payment

Answer 1

Answer:

$350,324

Explanation:

total lease liability = $390,000

since the first payment is made on January 1, the carrying of lease liability = $390,000 - $24,408 = $365,592

the interest expense for the 3 months = $365,592 x 10% x 3/12 = $9,139.80 ≈ $9,140

carrying value of lease liability after second payment = $365,592 - ($24,408 - $9,140) = $365,592 - 15,268 = $350,324