Final answer:
Francisco's lease liability on December 31, 2025 will be $999,827.57, accounting for the initial payment and interest accrued at an implicit rate of 9% over the following year.
Step-by-step explanation:
The balance in Francisco's lease liability on December 31, 2025,:
would be calculated by recognizing the annual lease payment made at the end of 2024 and then accruing interest on the remaining balance over the course of the next year at the implicit interest rate known by the lessee, which is 9%.
The initial lease liability is the present value at the inception of the lease, which is $1,070,273. After the first payment of $153,000 on December 31, 2024, the remaining balance will be the initial amount minus the payment made. Over the next year, the balance will accrue interest at the implicit rate of 9%. Therefore, the balance on December 31, 2025, will be this adjusted balance plus the interest accrued over the year.
To calculate:
- Adjusted Balance after payment on Dec 31, 2024: $1,070,273 - $153,000 = $917,273
- Interest for the year 2025 at 9%: $917,273 × 0.09 = $82,554.57
- Lease Liability on Dec 31, 2025: $917,273 + $82,554.57 = $999,827.57