Question

Nath Salons leased equipment from Li Company on January 1, 2024, in an operating lease. The present value of the lease payments discounted at 11% was $91,500. Ten annual lease payments of $14,000 are due at each January 1 beginning January 1, 2024. The amortization of the right-of-use asset for the reporting year ending December 31,2024 , would be:

Multiple Choice
$10,065.
$5,475.
$8,525.
$14.000

Answer 1

The exact amortization of the right-of-use asset for Nath Salons cannot be determined without further information regarding the specific accounting practices and whether the asset's useful life matches the lease term.

Step-by-step explanation:

The question revolves around the calculation of the amortization of the right-of-use asset for an operating lease that Nath Salons entered into with Li Company. The present value of the lease payments is $91,500, based on an 11% discount rate, with ten annual payments of $14,000. To calculate the amortization for the year, the total present value amount needs to be allocated over the lease term, subtracting any interest expense. Since this is an operating lease, the yearly amortization would typically equal the straight-line depreciation of the right-of-use asset. However, without additional information on whether the right-of-use asset's useful life is equal to or longer than the lease term, we cannot accurately provide the annual amortization amount. The options given seem to align with typical lease amortization calculations, but as the specific accounting practices can differ based on the standards being applied (such as IFRS or US GAAP), further details would be needed to provide an accurate figure.

Answer 2

The amortization of the right-of-use asset for an operating lease for the year ending December 31, 2024, is not computable from the information provided since the lease payment schedule or amortization approach is not specified.

Step-by-step explanation:

The question revolves around calculating the amortization of a right-of-use asset associated with an operating lease for Nath Salons leased from Li Company. Given that the present value of the lease payments discounted at 11% is $91,500 and that there are ten annual lease payments of $14,000 due at the beginning of each year starting January 1, 2024, we must determine the amortization expense for the year ending December 31, 2024. This would typically require dividing the present value of the lease by the lease term. However, since the question is asking for a choice from provided options, we would look at the lease schedule which would normally apportion an element of each payment to interest and reduce the carrying amount of the liability; the balance is the amortization of the right-of-use asset. The question does not provide all necessary details to calculate this, such as the schedule of expected lease payments or a straight-line versus accelerated approach to amortization. Therefore, without further information, we cannot provide an accurate calculation from the options given.