Question
On January 1, 2020, Lessee Inc. leased equipment at an annual payment of $255,297 payable at the beginning of each year for 4 years. The
On January 1, 2020, Lessee Inc. leased equipment at an annual payment of $255,297 payable at the beginning of each year for 4 years. The equipment had a fair value of $1,200,000, a book value of $1,125,000, and was commonly purchased or leased by customers. The lessor estimates that the equipment has an estimated useful life of 8 years and an estimated residual value of $375,000, not guaranteed by the lessee. Lessors implicit rate is 7.5%, which is unknown to the lessee. The lessees incremental borrowing rate is 8%. The lease does not contain a purchase option or a renewal option. The lessee had no other costs associated with this lease.
a. Prepare an amortization schedule of the lease liability. Note: Round each amount in the schedule to the nearest whole dollar. Use the rounded amount for later calculations in the schedule. Note: Include any net rounding difference to Lease Liability in the Interest on Liability amount for Jan. 1, 2027.
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