On January 1. 2018, Blue Sky Airlines leased a jumbo jet from Boeing Corporation

Question

On January 1. 2018, Blue Sky Airlines leased a jumbo jet from Boeing Corporation. The terms of the lease require Blue Sky to make 20 annual payments of $1,000,000 on each January 1. Generally accepted accounting principles require this lease to be recorded as a liability or the present value of scheduled pa ments. Assume that a 7% interest rate proper reflects the time value of money in this situation. At what amount should Blue Sky record the lease liability on January 1, 2018, before any payments are made, assuming that the first payment will be made on January 1, 2018? O S11335,600 O $10,879,640 O S10,594,010 O $9.245.780

Explanation / Answer

Solution :

Total lease liability

= First installment + APVF (7%, 19 years) x1,000,000

= 1,000,000 + 10.33560 x 1,000,000

= $11,335,600

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