Oak Co. leased equipment for its entire 9-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, year 1 and $50,000 annually on each December 31 for the next 8 years. Oak paid $3,000 in am initial direct costs at lease inception. The present value on December 31, year 1 of the nine lease payments over the lease term, using the rate implicit in the lease, which Oak knows to be 10%, was $316,500. The December 31, year 1 present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under GAAP and uses straight-line depreciation. What amount should oak report as ROU asset on its December 31, year 2 balance sheet? 265,333 281,333 284,000 319,500

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Chapter1: Financial Statements And Business Decisions
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Oak Co. leased equipment for its entire 9-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, year 1 and $50,000 annually on each December 31 for the next 8 years. Oak paid $3,000 in am
initial direct costs at lease inception. The present value on December 31, year 1 of the nine lease payments over the lease term, using the rate implicit in the lease, which Oak knows to be 10%, was $316,500. The December 31,
year 1 present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under GAAP and uses straight-line depreciation. What amount should oak report as
ROU asset on its December 31, year 2 balance sheet?
265,333
281,333
284,000
319,500
Transcribed Image Text:Oak Co. leased equipment for its entire 9-year useful life, agreeing to pay $50,000 at the start of the lease term on December 31, year 1 and $50,000 annually on each December 31 for the next 8 years. Oak paid $3,000 in am initial direct costs at lease inception. The present value on December 31, year 1 of the nine lease payments over the lease term, using the rate implicit in the lease, which Oak knows to be 10%, was $316,500. The December 31, year 1 present value of the lease payments using Oak's incremental borrowing rate of 12% was $298,500. Oak accounts for the finance lease under GAAP and uses straight-line depreciation. What amount should oak report as ROU asset on its December 31, year 2 balance sheet? 265,333 281,333 284,000 319,500
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