Financial Statement Impact of a Lease

On January 1, 2017, Muske Trucking Company leased a semitractor and trailer for five years. Annual payments of $28,300 are to be made every December 31 beginning December 31, 2017. Interest expense is based on a rate of 8%. The present value of the minimum lease payments is $112,994 and has been determined to be greater than 90% of the fair market value of the asset on January 1, 2017. Muske uses straight-line depreciation on all assets.

Prepare the balance sheet presentation as of December 31, 2018, for the leased asset and the lease obligation.

Muske Trucking CompanyBalance Sheet (Partial)December 31, 2018

Long-term assets:

Leased Truck: 112994

Accumulated depreciation: 45198

Total:67796

Current liabilities:

Lease Obligation____________

Long-term liabilities

Lease Obligation:72933