Financial Statement Impact of a Lease GEORGE\'s Warehouse signed a six-year capi

Question

Financial Statement Impact of a Lease

GEORGE's Warehouse signed a six-year capital lease on January 1, 2016, with payments due every December 31. Interest is calculated annually at 10%, and the present value of the minimum lease payments is $11,455.

Use the appropriate present value table:

PV of $1 and PV of Annuity of $1

Required:

1. Calculate the amount of the annual payment that GEORGE's must make every December 31. Round your answer to the nearest whole dollar.

Lease payment, December 31:
$ per year

2. Calculate the amount of the lease obligation that would be presented on the December 31, 2017, balance sheet (after two lease payments have been made). Round your calculations and answer to the nearest cent.

Lease obligation, December 31, 2017:
$

Explanation / Answer

1)Amount of annual payment =present value of minimum lease payment /PVA 10%,6

            = 11455 /4.35526

               = $ 2630 per year

2)

Lease obligation, December 31, 2017 = $ 8337.55

year ending payment Interest principal carrying value 31 dec2016 2630 1145.5    [11455*.10] 1484.5     [2630-1145.5] 11455 - 1484.5 =9970.5 31 dec 2017 2630 997.05     [9970.5*.10] 1632.95      [2630-997.05] 8337.55    [9970.5 -1632.95]

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