Question
I need to calculate the Fair Value of the Lease Obligation, and make an amortization schedule so that I can then create all adjusting entries.
I need to calculate the Fair Value of the Lease Obligation, and make an amortization schedule so that I can then create all adjusting entries.
Given information: "Six ovens were rented on December 31, with $20,000 charged to rent expense. The lease runs for 6 years with an implicit interest rate of 5%. At the end of the 6 years, Peyton will own them. Make any necessary adjusting entries."
For the fair value calculation I think I need to take the $20,000 payment and multiply it by the present value factor for an annuity but I am not sure if I need the factor for an Ordinary Annuity of $1: 5.07569, or the factor for Annuity Due of $1: 5.32948.
If an Ordinary Annuity: Fair Value = $20,000 * 5.07569 = $101,513.80
If an Annuity Due: Fair Value = $20,000 * 5.32948 = $106,589.60
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