16.0n December 31, 2017, Patten Co. leased a machine from Bass, Inc. for a five-

Question

16.0n December 31, 2017, Patten Co. leased a machine from Bass, Inc. for a five-year period. Equal annual payments under the lease are S600,000 and are due on December 31 of each year. The first payment was made on December 31, 2017, and the second payment was made on December 31, 2018. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was $2,502,000. The lease is appropriately accounted for as a finance lease by Patten. In its December 31, 2018 balance sheet, Patten should report a lease liability of a. $1,902,000 b. $1,872,000. c. S1,711,800. d. $1.492,200

Explanation / Answer

Interest expense for year ended Dec 31,2018=(2502000-600000)*10%= $190200 Lease Liability at Dec 31,2018=2502000-600000-600000+190200= $1492200 Option D is correct

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