On January 1, 2020, Stacy Company entered into a lease of an office building with the following information:

Annual lease payment every December 31 300,000

Lease term 4 years

Useful life of the building 15 years

Implicit rate in the lease 8%

PV of an ordinary annuity of 1 at 8% for 4 periods 3.312

The lease contained an option for the lessee to extend for another 4 years. At the commencement date, the exercise

of the extension option is not reasonably certain. However, after two years on January 1, 2022, the lessee decided to

extend the lease for another 4 years with the following information:

New annual lease payment every December 31 500,000

New implicit rate 6%

PV of an ordinary annuity of 1 at 6% for 4 periods 3.465

PV of 1 at 6% for 2 periods 0.89

PV of an ordinary annuity of 1 at 6% for 2 periods 1.833

1.. What is the lease liability on December 31, 2021?

A. 534,935 B. 600,000 C. 773,088 D. 993,600

2. What is the present value of the lease payment of the remaining old lease term due to the extension on

January 1, 2022?

A. 500,000 B. 534,935 C. 549,900 D. 916,500

3. What is the present value of the lease payment for the new lease term on January 1, 2022?

A. 925,155 B. 1,541,925 C. 1,732,500 D. 2,000,000

4.What is the increase in the lease liability to be recognized on January 1, 2022?

A. 1,541,925 B. 1,556,890 C. 2,091,825 D. 2,400,000

5. What is the new carrying amount of the right of use asset on January 1, 2022?

A. 496,800 B. 1,556,890 C. 2,053,690 D. 3,000,000

With solution