On January 1, 2018, Betty DeRose, Inc. leased office furniture and equipment fro
ID: 2520337 • Letter: O
Question
On January 1, 2018, Betty DeRose, Inc. leased office furniture and equipment from Young Leasing Company. The terms of the lease require annual payments of $50,000 for 10 years with the first payment being due on December 31, 2018. Assume the interest rate on the lease is 10% and the lease qualifies as a capital lease. Betty DeRose depreciates all assets using the double-declining balance method. Calculate the amount of the lease balance liability at December 31, 2019 that would be classified as a long-term liability. Use the time value of money factors posted in canvas to answer this question. To access these factors, click modules and then scroll to week 11. Click on the link labeled present & future value table factors. No credit will be awarded for this question using a means other than these table factors to answer this question.
Explanation / Answer
Year
Lease payment
Discount factor @10%
Present value
2018
50000
0.909091
45454.55
2019
50000
0.826446
41322.31
2020
50000
0.751315
37565.74
2021
50000
0.683013
34150.67
2022
50000
0.620921
31046.07
2023
50000
0.564474
28223.70
2024
50000
0.513158
25657.91
2025
50000
0.466507
23325.37
2026
50000
0.424098
21204.88
2027
50000
0.385543
19277.16
Lease balance at beginning
307228.36
Year
Beginning balance of lease liability
Lease payment
Interest expenses (beginning balance of lease liability*10%)
Reduction in lease liability (lease payment - interest expenses)
Ending balance of lease liability (beginning balance of lease liability - reduction in lease liability)
2018
307228.36
50000.00
30722.84
19277.16
287951.19
2019
287951.19
50000.00
28795.12
21204.88
266746.31
2020
266746.31
50000.00
26674.63
23325.37
243420.94
2021
243420.94
50000.00
24342.09
25657.91
217763.03
2022
217763.03
50000.00
21776.30
28223.70
189539.34
2023
189539.34
50000.00
18953.93
31046.07
158493.27
2024
158493.27
50000.00
15849.33
34150.67
124342.60
2025
124342.60
50000.00
12434.26
37565.74
86776.86
2026
86776.86
50000.00
8677.69
41322.31
45454.55
2027
45454.55
50000.00
4545.45
45454.55
0.00
Amount of lease liability at December 31, 2019 as per above table
266746.31
Year
Lease payment
Discount factor @10%
Present value
2018
50000
0.909091
45454.55
2019
50000
0.826446
41322.31
2020
50000
0.751315
37565.74
2021
50000
0.683013
34150.67
2022
50000
0.620921
31046.07
2023
50000
0.564474
28223.70
2024
50000
0.513158
25657.91
2025
50000
0.466507
23325.37
2026
50000
0.424098
21204.88
2027
50000
0.385543
19277.16
Lease balance at beginning
307228.36