Question

On January 1, 2018, Gemini Corporation leased equipment under a finance lease designedto earn the lessor a 12% rate of return for providing long-term financing. The lease agreementspecified ten annual payments of $225,000 beginning January 1, and each December 31thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance ofthe equipment as required for a fee of $15,000 per year. Insurance premiums of $12,000 annuallyare related to the equipment. Both amounts were to be paid by the lessor and the lease paymentsreflect both expenditures. At what amount will Gemini record a right-of-use asset

Answer 1

$1,328,932.46

Explanation:

The computation of the amount will Gemini record a right-of-use asset is shown below:-

Right of use assets = (Annual payment - Fee per year) × PVAD, rate of return, number of year s

= ($225,000 - $15,000) × PVAD, 12%, 10

= $210,000 × PVAD, 12%, 10

= $1,328,932.46

Therefore for computing the right of use assets we simply applied the above formula.