After the first full year under the warehouse lease, what is the balance in Dowell’s lease liability? An amortization schedule would be helpful in determining this amount.
Leases:
Dowell leased the warehouses 1 year ago on December 31. The 5 year lease agreement called for Dowell to make quarterly lease payments of $2,398,303 payable each December 31, March 31, June 30 & September 30, with the first payment at the lease’s beginning. As a finance lease, Dowell had recorded the right-of-use asset and liability at $40 million, the present value of the lease payments at 8%. Dowell records amortization on a straight-line basis at the end of each fiscal year.
Today, Dowell’s controller explained a proposal to sublease the underused warehouses to American Tankers Inc for the remaining 4 years of the lease term. American Tankers would be substituted as lessee under the original lease agreement. As the new lessee, it would become the primary obligor under the agreement, and Dowell would not be secondarily liable for fulfilling the obligations under the lease agreement. How would we need to account for this?
- After the first full year under the warehouse lease, what is the balance in Dowell’s lease liability? An amortization schedule would be helpful in determining this amount.
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