Financial Statement Reporting for an Operating Lease Harmeling Paint Ball (HPB) Corporation needs a new air compressor that costs $80,000. HPB will need it for only 5 years even though the compressor's economic life is long enough so that the lease is an operating lease. The firm can lease the compressor for 5 years with $25,000 lease payments at the end of each year. HPB's cost of debt is 14%. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will HPB report as the Year-1 lease expense? Round your answer to the nearest cent. Enter your answer as a positive value. $ d. What is the Year-1 imputed interest expense? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ e. What lease liability must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ f. What right-of-use asset must be reported at Year 1? Do not round intermediate calculations. Round your answer to the nearest cent. $ TABLE 19-1 Financial Reporting for Leases Part 1: Preliminary Calculations Year 0 Year 1 Year 2 Year 3 Lease liability balance $26,730 $18,334 $9,434 50 Imputed interest expense $1,604 $1,100 $566 Lease payment $10,000 $10,000 $10,000 Part 2: Reporting an Operating Lease. Year 0 Year 1 Year 2 Year 3 Lease liability balance $26,730 $18,334 $9,434 $0 Right-of-use asset balance $26,730 $18,334 $9,434 $0 Lease expense $10,000 $10,000 $10,000 Part 3: Reporting a Finance Lease Year 0 Year 1 Year 2 Year 3 Lease liability balance $26,730 $18,334 $9,434 $0 $26,730 Right-of-use asset balance $17,820 $8,910 50 Interest expense $1,604 $1,100 $566 Amortization expense" $8.910 $8.910 $8.910 Total lease expense $10,514 $10,010 $9,476 Notes: The lease lability in Year O is equal to the initial lease lability. For subsequent years, the lease liability balance is equal to the previous balance plus the imputed interest minus the lease payment. The imputed interest for the end of Yeart is equal to the cost of debt (r) multiplied by the lease liability payment at the beginning of Year t The right-of-use asset balance for an operating lease is equal to the lease lability balance. "The lease expense for an operating lease is equal to the lease payment. The night-of-use balance for a finance lease is equal to the previous balance minus the amortization expense. The interest expense for a finance lease is equal to the imputed interest. The amortization expense for a finance lease is equal to initial right-of-use asset divided by the number of years of the lease
