The lease expense for 2017 is $20,500. Option D is the right choice.
The lease payments are not equal each year, so the lease expense must be calculated using the present value of the lease payments. The present value of the lease payments is equal to the sum of the present values of each individual payment. The present value of each individual payment can be calculated using the following formula:
PV = PMT / (1 + r)^n
Where:
PV is the present value
PMT is the payment amount
r is the discount rate
n is the number of periods
The discount rate is not given in the problem, so we will assume that it is 10%. Using this discount rate, we can calculate the present value of each lease payment as follows:
Year Payment Present Value
2017 $20,500 $18,636.36
2018 $17,000 $13,607.78
2019 $16,000 $12,283.19
The total present value of the lease payments is $44,527.33. The lease expense for each year is equal to the total present value of the lease payments divided by the number of years in the lease.
In this case, the lease expense for each year is $44,527.33 / 4 = $11,131.83.
However, the lease payments are not equal each year, so the lease expense must be allocated to each year using the ratio of the present value of the payment for that year to the total present value of the lease payments.
The ratio of the present value of the 2017 payment to the total present value of the lease payments is $18,636.36 / $44,527.33 = 0.4184. Therefore, the lease expense for 2017 is $11,131.83 x 0.4184 = $4,682.82.
The lease expense for 2017 is $20,500.
The correct answer is poption D. $20,500.