Question

On January 1, 2016, Bella Donna leased an office building. Terms of the lease require Bella Donna to make 10 annual lease payments of $21,097 beginning on January 1, 2017. A 10% interest rate is implicit in the lease agreement. At what amount should Bella Donna record the lease liability on January 1, 2016, before any lease payments are made?

Answer 1

$129,632.62

Step-by-step explanation:

The computation of the lease liability amount is shown below:

= Annual lease payment × PVIFA factor for 10% interest rate at 10 annual lease payments

= $21,097 × 6.1446

= $129,632.62

Refer to the PVIFA table

Basically we multiplied the annual lease payment with the PVIFA factor so that the approximate amount could come