On January 1, 2022 (lease inception date), Tofootles Company leases a piece of equipment from ABC Leasing
Question:
On January 1, 2022 (lease inception date), Tofootles Company leases a piece of equipment from ABC Leasing Company. The lease term is for 4 years with the first payment of $1,000 due on January 1, 2022. The remaining three payments of $1,000 each are due on January 1, 2023, 2024, and 2025. In addition to the $1,000 base annual payment, the lease contract specifies an annual adjustment that is $50 for every point that the Consumer Price Index is above 250. The CPI on January 1, 2022, was 250. However, the annual adjustment is limited to a 2% increase. The implicit rate (known by the lessee) in the lease is 8%.
Using Topic 842 in the Codification for support as necessary, determine the present value of the lease payments.
Step by Step Answer:
Intermediate Accounting
ISBN: 9780136946694
3rd Edition
Authors: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella