Question

On October 1, 2021, Sonoma Company leased equipment from Napa Inc. in lease payable in five equal annual payments of $540,000, beginning Oct 1, 2022. Similar transactions have carried an 11% interest rate. The right-of-use asset would be recorded at:________ (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Answer 1

$1,995,786

Step-by-step explanation:

Calculation to determine what The right-of-use asset would be recorded at:

Using this formula

Right-of-use asset=Annual payments*PV ordinary annuity

Where,

Annual payments=$540,000

PV ordinary annuity of $1: n = 5; i = 11%=3.69590

Let plug in the formula

Right-of-use asset= $540,000 × 3.69590

Right-of-use asset = $1,995,786

Therefore The right-of-use asset would be recorded at:$1,995,786