ABC (the lessee) leased a machine from XYZ (the lessor) on January 1, 2023. Relevant information about the finance lease follows: ▪ The lease has a 5 year term, beginning January 1, 2023 and ending December 31 of the final year of the lease. ▪ The lease requires annual payments of $81,593. The first payment is made on the date the lease is signed (January 1, 2023), and subsequent payments are made on December 31 of 2023 and each December 31 after that. ▪ The asset has an economic useful life of 5 years. ▪ The asset will be returned to XYZ (the lessor) at the end of the lease term. ▪ The lease includes an implicit interest rate of 7% per year, and the present value of the payments is equal to the fair value of the asset. Required: Calculate the value of the Right-of-Use Asset that ABC will record on the date the lease is signed.
ABC (the lessee) leased a machine from XYZ (the lessor) on January 1, 2023. Relevant information about the finance lease follows: ▪ The lease has a 5 year term, beginning January 1, 2023 and ending December 31 of the final year of the lease. ▪ The lease requires annual payments of $81,593. The first payment is made on the date the lease is signed (January 1, 2023), and subsequent payments are made on December 31 of 2023 and each December 31 after that. ▪ The asset has an economic useful life of 5 years. ▪ The asset will be returned to XYZ (the lessor) at the end of the lease term. ▪ The lease includes an implicit interest rate of 7% per year, and the present value of the payments is equal to the fair value of the asset. Required: Calculate the value of the Right-of-Use Asset that ABC will record on the date the lease is signed.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:ABC (the lessee) leased a machine from XYZ (the lessor) on January 1, 2023. Relevant information about
the finance lease follows:
▪ The lease has a 5 year term, beginning January 1, 2023 and ending December 31 of the final year of the
lease.
■ The lease requires annual payments of $81,593. The first payment is made on the date the lease is
signed (January 1, 2023), and subsequent payments are made on December 31 of 2023 and each
December 31 after that.
■ The asset has an economic useful life of 5 years.
▪ The asset will be returned to XYZ (the lessor) at the end of the lease term.
▪ The lease includes an implicit interest rate of 7% per year, and the present value of the payments is
equal to the fair value of the asset.
Required: Calculate the value of the Right-of-Use Asset that ABC will record on the date the lease is
signed.
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