On January 1, Durant Inc. entered into a noncancelable ten-year lease for cooking equipment with a fair
Question:
On January 1, Durant Inc. entered into a noncancelable ten-year lease for cooking equipment with a fair value of \($100\) million and requiring annual year-end lease payments. The company’s year-end is December 31.
Required
1. If the implicit interest rate on the lease is six percent, what is the annual lease payment?
2. Assuming that the lease is accounted for as a capital lease, what financial effects will be recorded in the financial statements with regard to the lease on January 1?
3. Assuming that the lease is accounted for as a capital lease, what financial effects will be recorded with regard to the lease on December 31 (at the end of the first year)?
4. What are the total expenses associated with the lease in the second year if it is accounted for as an operating lease? As a capital lease?
5. How would your answers to the above questions differ under the new lease accounting rules required beginning in 2019?
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