On December 31, 2015, Lang Corporation leased a ship from Fort Company for an ei
ID: 2474950 • Letter: O
Question
On December 31, 2015, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2023. Equal annual payments of $300,000 are due on December 31 of each year, beginning with December 31, 2015. The lease is properly classified as a capital lease on Lang ‘s books. The present value at December 31, 2015 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, 2016 balance sheet is _____________
Explanation / Answer
Solution.
$1,584,475.2
Lang Corporation as the total obligation under capital leases on its December 31, 2016 balance sheet is calculated below :
The present value at December 31, 2015 of the eight lease payments over the lease term discounted at 10% is $1,760,528
The present value at December 31, 2016 balance sheet = $1,760,528 - 10% of $1,760,528
= $1,760,528 - $1,760,52.8
= $1,584,475.2
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