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I cant seem to figure out the right answer for this?
“Co B starts a 4 year finance lease on 1.1.X8. Payments of $35,000 are to be made annually in advance, and the fair value of the asset is $120,000. The interest rate implicit in the lease is 11.42%
What is the non-current lease liability as at 31.12.X8?”
I calculated the answer to be $66,526 but the correct ans given is $59,707. Can anyone explain to me pls? tq
Hi Cookie remember with leases if payment is in advance the $35000 lease payment we treat it as having paid before year 1 sort of year 0. So when you come to calculate your liability for year ending 31.12X8 your bfwd bal at beginning of the year is $85000 less the 35000 (advance pamnt for y/e X9) plus your interest (11.42% on the $85k) that’s how they got the $59707.
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