Question
On January 1, Year1 Garret Trucking Company leased a semitractor and trailer for five years. Annual payments of $ 31307 are to be made every
On January 1, Year1 Garret Trucking Company leased a semitractor and trailer for five years. Annual payments of $31307 are to be made every December 31, beginning December 31, Year1. Interest expense is based on a rate of 8%. The present value of thelease payments is $125000 and has been determined to be greater than 90% of the fair market value of the asset on January 1, Year1. Garret has computed the following amortization table for the lease liability:
Date | Lease Payment | Interest Expense | Reduction of Obligation | Lease Obligation |
1/01/Yr1 |
|
|
| 125000 |
12/31/Yr1 | 31307 | 10000 | 21307 | 103693 |
12/31/Yr2 | 31307 | 8295 | 23012 | 80681 |
12/31/Yr3 | 31307 | 6454 | 24853 | 55828 |
12/31/Yr4 | 31307 | 4466 | 26841 | 28987 |
12/31/Yr5 | 31307 | 2320 | 28987 | 0 |
1. What will Garrett report as a Right-of-use asset at the inception of the lease?
2. What is total expense reported with respect to this lease for Year1 (include interest expense and amortization expense for the right-of-use asset.)
3. What is total expense reported with respect to this lease for Year2 (include interest expense and amortization expense for the right-of-use asset.)
4. Complete the following sections of the company's balance sheet at December 31, Yr3.
Assets: Right-of-use asset
Liabilities: Lease liability:
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