On June 30, 2016, Fly-By-Night Airlines leased a jumbo jet from Boeing Corporati

Question

On June 30, 2016, Fly-By-Night Airlines leased a jumbo jet from Boeing Corporation. The terms of the lease require Fly-By-Night to make 20 annual payments of $1,800,000 on each June 30. Generally accepted accounting principles require this lease to be recorded as a liability for the present value of scheduled payments. Assume that a 7% interest rate properly reflects the time value of money in this situation. (FVof $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required 1. At what amount should Fly-By-Night record the lease liability on June 30, 2016, assuming that the first payment will be made on June 30, 2017? Table or calculator function: PVA of $1 1,800,000 20 7% Payment: PV - 6/30/2016: 2. At what amount should Fly-By-Night record the lease liability on June 30, 2016, before any payments are made, assuming that the first payment will be made on June 30, 2016? Table or calculator function: PVAD of $1 1,800,000 20 7%. Payment: PV - 06/30/2016:

Explanation / Answer

Table PVA of $1 Payment $1,800,000 n 20 i 7% PV 6/30/2016 19069218 ans working PVA (7%,20) 19069218 1800000*10.59401 Table PVAD of $1 Payment $1,800,000 n 20 i 7% PV 6/30/2016 20404080 ans working PVAD (7%,20) 20404080 1800000*11.33560 If any doubt please comment

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