Kendall County entered into a lease agreement to finance computer equipment used in government offices. The lease covers three years, and county officials are reasonably certain that funding and approvals will be renewed annually. At the inception of the lease, a payment of $450,000 will be made; two additional annual lease payments of $450,000 are to be made near the end of each year. The total amount to be paid under this lease is $1,350,000. The lease arrangements implied an annual interest rate of 5 percent. Therefore, the present value of the lease at inception, including the initial payment, is $1,286,734. Assume that the fair value of the equipment at the inception of the lease is $1,300,000.Question c-2. What amount would the liability be reported at the end of the first year?

Kendall County entered into a lease agreement to finance computer equipment used in government offices. The lease covers three years, and county officials are reasonably certain that funding and approvals will be renewed annually. At the inception of the lease, a payment of $450,000 will be made; two additional annual lease payments of $450,000 are to be made near the end of each year. The total amount to be paid under this lease is $1,350,000. The lease arrangements implied an annual interest rate of 5 percent. Therefore, the present value of the lease at inception, including the initial payment, is $1,286,734. Assume that the fair value of the equipment at the inception of the lease is $1,300,000.Question c-2. What amount would the liability be reported at the end of the first year?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 10C

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Hh.15.
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