Reporting Finance Lease, Guaranteed ResidualLessee

On the first day of its accounting year, January 1, 2020, Lessee Inc. leased a building at an annual payment of $208,272 to be paid at the beginning of each year for 10 years. The first payment was paid immediately. The building, which is new, cost $1,650,000 and has an estimated useful life of 12 years. The lessors implicit rate is 6% and is known to Lessee Inc. The residual value of the building of $45,000 was guaranteed by Lessee Inc. who expects the residual value to approximate $30,000. Lessee Inc. incurred the following additional costs and received the following incentives pertaining to this lease:

• Paid legal fees of $1,500 related to the execution of the lease.
• Paid a fixed lease payment of $208,272 plus a $5,250 recurring payment to the lessor for hazard insurance on the building.
• Received a lease incentive of $2,250 to sign the lease.

e. What would be the value of the lease liability on January 1, 2020, if the lessor charged a market price for hazard insurance, which changed from year to year?

Note: Round amount to the nearest whole dollar.

Lease liability

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