Question

On January 1, 2012, Porter Corporation signed a five-year noncancelable lease for certain machinery. The terms of the lease called for:

1. price to make annual payments of $60,000 at the end of each year (starting on December 31, 2012) for five years. Porter must return the equipment to the lessor end of this period.
2. the machinery has an estimated useful life of 6 years and no expected salvage value.
3. Porter uses the straight-line method of depreciation for all of its fixed assets.
4. Porter's incremental borrowing rate is 8%. 5. the fair value of the asset at January 1, 2012, is $275,000.

At January 1, 2012, Porter should record an asset and liability with respect to the equipment lease equal to ________.

Answer 1

$275,000

Step-by-step explanation:

The lease liability is recorded at the Present Value amount of the lease payments based on the incremental borrowing rate.

The lease asset is recorded at the same amount of lease liability including other costs of placing the assets in location and condition intended for use by management.