On December 31, 2013, Burton, Inc. leased machinery with a fair value of $1,050,

Question

On December 31, 2013, Burton, Inc. leased machinery with a fair value of $1,050,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $200,000 beginning December 31, 2013. The lease is appropriately accounted for by Burton as a capital lease. Burton's incremental borrowing rate is 11%. Burton knows the interest rate implicit in the lease payments is 10%.

The present value of an annuity due of 1 for 6 years at 10% is 4.7908.

The present value of an annuity due of 1 for 6 years at 11% is 4.6959.

In its December 31, 2013 balance sheet, Burton should report a lease liability of

Answer

$758,160

$958,160

$939,180

$850,000

$758,160

$958,160

$939,180

$850,000

Explanation / Answer

Burton should report a lease liability of = $200,000 x 90% x 4.6959 = $845262 = $850000

Hence, option D is correct

Related Questions

Navigate

• Browse (All)
• Browse O
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.