Expert Answer Step 1 1. Following is the calculation of lease liability and right-to-use assets for T's Company: Calculation of lease liability Particulars Present Value of rental value (69,223 ×7.8017) Lease payments ((16,000 – 10,000)×0.5584) Amount $ 540,057.079 3.340.4 543,397.48 OR Lease payments Fair Value of Building Lease Liability 543,397 548,990 543,397 Note: 1. Present value of Annuity Due at 6%, 10 years is 7.8017. Present Value at 6%, 10 year is 0.5584. Calculation of right-to-use assets Particulars Amount Fair Value of Building Add: Lease Payment made before the commencement Add: Initial Direct Cost Less: Lease Incentives Right-to-use assets 548,990 Nil 5,000 Nil 553,990

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

I have a question. From your answer (image) I did not understand how to get the following data:
1. Present value of Annuity Due at 6%, 10 years is 7.8017.
    Present Value at 6%, 10 year is 0.5584

I would be very grateful if you explain how to get it!
thank you!

Assume that on December 31, 2019, Telco Company signs a 10-year, non-cancelable lease agreement to lease a storage building from Redfield Storage. The following information pertains to this lease agreement.
 - The agreement requires equal rental payments of €69,223 beginning on December 31, 2019.
- Telco Company incurs initial direct costs of €5,000.
- The fair value of the building on December 31, 2019, is €548,990.
- The building has an estimated economic life of 12 years, a guaranteed residual value of €16,000, and an expected residual value of €10,000. Telco Company depreciates similar buildings using the straight-line method.
- The lease is non-renewable. At the termination of the lease, the building reverts to the lessor.
- Telco Company incremental borrowing rate is 6% per year. The lessor's implicit rate is not known by Telco Company.
Instructions
1. Compute the amount of the lease liability and right-of-use asset for Telco Company.
2. Prepare the journal entries on the lessee’s books to reflect the signing of the lease agreement and to record the payments and expenses related to this lease for the years 2019 and 2020. Telco Company annual accounting period ends on December 31

Expert Answer
Step 1
1. Following is the calculation of lease liability and right-to-use assets for T's Company:
Calculation of lease liability
Particulars
Present Value of rental value (69,223 ×7.8017)
Lease payments ((16,000 – 10,000)×0.5584)
Amount $
540,057.079
3.340.4
543,397.48
OR
Lease payments
Fair Value of Building
Lease Liability
543,397
548,990
543,397
Note: 1. Present value of Annuity Due at 6%, 10 years is 7.8017.
Present Value at 6%, 10 year is 0.5584.
Calculation of right-to-use assets
Particulars
Amount
Fair Value of Building
Add: Lease Payment made before the commencement
Add: Initial Direct Cost
Less: Lease Incentives
Right-to-use assets
548,990
Nil
5,000
Nil
553,990
Transcribed Image Text:Expert Answer Step 1 1. Following is the calculation of lease liability and right-to-use assets for T's Company: Calculation of lease liability Particulars Present Value of rental value (69,223 ×7.8017) Lease payments ((16,000 – 10,000)×0.5584) Amount $ 540,057.079 3.340.4 543,397.48 OR Lease payments Fair Value of Building Lease Liability 543,397 548,990 543,397 Note: 1. Present value of Annuity Due at 6%, 10 years is 7.8017. Present Value at 6%, 10 year is 0.5584. Calculation of right-to-use assets Particulars Amount Fair Value of Building Add: Lease Payment made before the commencement Add: Initial Direct Cost Less: Lease Incentives Right-to-use assets 548,990 Nil 5,000 Nil 553,990
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps with 2 images

Blurred answer
Knowledge Booster
Mortgages
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education