Question

On June 30, Year 1, a company signs a lease requiring quarterly payments each year for the next five years. Each of the 20 quarterly payments is $29,122.87, with the first lease payment beginning September 30. The company's normal borrowing rate is 6%

Answer 1

Explanation:

The objective of this question is to find the present value of the lease payment and record the lease on June 30, Year 1.

Given that:

The lease requires quarterly payment.

Borrowing rate = 6%

∴

The quarterly interest rate =
`6\% * (1)/(4)`

The quarterly interest rate = 1.50%

Now, the present value for the lease payment can be calculated as:

= $29,122.87 × PV(1.5%,20)

= $29,122.87 × 17.16864

= $500000.071

≅ $500,000 (to the nearest whole dollar amount)

The Journal entries:

No. Date Account title Debit Credit

1 June 30 Lease assets $500,000

Lease Payable $500,000

(To record lease

Payable)