Larkins, Inc. leases equipment from Bostic for $30,000 per year for three years.
ID: 2599640 • Letter: L
Question
Larkins, Inc. leases equipment from Bostic for $30,000 per year for three years. The contract is signed on January 1, Year One and the first payment is made immediately. The second payment will be made on January 1, Year Two. Larkins has an incremental borrowing rate of 10 percent and the present value of a three year annuity due of $30,000 each year is assumed to be $82,000 at that rate. This lease contract does not meet any of the four criteria for a capital lease. What liability should Larkins report on its December 31, Year One balance sheet?
zero
10K
57,200 $
60,200
Larkins, Inc. leases equipment from Bostic for $30,000 per year for three years. The contract is signed on January 1, Year One and the first payment is made immediately. The second payment will be made on January 1, Year Two. Larkins has an incremental borrowing rate of 10 percent and the present value of a three year annuity due of $30,000 each year is assumed to be $82,000 at that rate. This lease contract does not meet any of the four criteria for a capital lease. What liability should Larkins report on its December 31, Year One balance sheet?
zero
10K
57,200 $
60,200
Explanation / Answer
Since it is not a capital lease, no lease liability would be reported on its December 31, Year One balance sheet Option 1 zero is correct
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