At the beginning of current year, Denver Company sold an equipment with remaining life of 10 years and immediately leased it back for 4 years at the prevailing market rental. Sale price at fair value: 6,000,000 Carrying amount of equipment: 4,500,000 Annual rental payable at the end of each year: 800,000 Implicit interest rate: 10% Present value of an ordinary annuity of 1 at 10% for four periods: 3.17  What amount should be reported as initial lease liability?  3,000,000

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A: Here is the Solution

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Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.