Question
HAN COMPANY entered into a 9-year (nine-year) lease on a warehouse on December 31, 2018. The estimated useful life of the warehouse on the date
HAN COMPANY entered into a 9-year (nine-year) lease on a warehouse on December 31, 2018. The estimated useful life of the warehouse on the date of the agreement is 12 years. The lease is non-renewable, and the warehouse reverts to the lessor at the end of the lease term. Lease payment of $500,000 is due annually starting December 31, 2019, and every December 31 thereafter. The cost of restoring the underlying asset to its original condition as required by the contract is estimated at the present value of $200,000.The interest rate implicit in the lease is 9%. The present value of an ordinary annuity of 1 for 9 (nine) years at 9% is 5.6.
Determine the amount that should be reported as lease liability on December 31, 2018
$2,912000
$4,680,000
$2,800,000
$4,500,000
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