Question

On January 1, Garcia Supply leased a truck for a three-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $12,000 due on December 31 of each year, calculated by the lessor using a 4% discount rate. Negotiations led to Garcia guaranteeing a $31,600 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $30,200.

What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee?

Answer 1

The lease liaiblity will include additional 45,134.39 dollars for the residual value guarantee

Step-by-step explanation:

We need to add to the present value of the lease payment, the present value of the guaranteed residual value as this is part of the lease liaiblity as well.

Maturity 60,400.00

time 5.00

rate of 0.06

PV 45,134.39

The gain or loss based on the residual value will be considered at the end of the useful life of the truck. The expected fair value at the end of the lease has no relevance