On December 31, 2020, Johnson Company entered into a 10-year lease agreement with Woods, Inc. to lease equipment. Annual lease payments of $10,000 are payable each December 31, beginning with the date the lease is signed. There is a $10,000 guaranteed residual value but Johnson believes the residual asset will only be worth $5,000 at the end of the lease. Johnson knows that the lessor expects a 10% return on the lease. Johnson has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years and the lease is classified as a finance lease. When Johnson Company records the lease, what amount should be recorded as the lease liability? The present value of an annuity due at: 12% for 10 years is 6.32825 10% for 10 years is 6.75902 The present value of $1 at 12% for 10 years is 0.3220 10% for 10 years is 0.3855 O A. $67,590 O B. $69,518 OC $71,445 OD. $61,446
On December 31, 2020, Johnson Company entered into a 10-year lease agreement with Woods, Inc. to lease equipment. Annual lease payments of $10,000 are payable each December 31, beginning with the date the lease is signed. There is a $10,000 guaranteed residual value but Johnson believes the residual asset will only be worth $5,000 at the end of the lease. Johnson knows that the lessor expects a 10% return on the lease. Johnson has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years and the lease is classified as a finance lease. When Johnson Company records the lease, what amount should be recorded as the lease liability? The present value of an annuity due at: 12% for 10 years is 6.32825 10% for 10 years is 6.75902 The present value of $1 at 12% for 10 years is 0.3220 10% for 10 years is 0.3855 O A. $67,590 O B. $69,518 OC $71,445 OD. $61,446
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:On December 31, 2020, Johnson Company entered into a 10-year lease agreement with Woods, Inc. to lease equipment. Annual lease payments of $10,000 are payable each December 31,
beginning with the date the lease is signed. There is a $10,000 guaranteed residual value but Johnson believes the residual asset will only be worth $5,000 at the end of the lease. Johnson
knows that the lessor expects a 10% return on the lease. Johnson has a 12% incremental borrowing rate. The equipment is expected to have an estimated useful life of 10 years and the
lease is classified as a finance lease. When Johnson Company records the lease, what amount should be recorded as the lease liability?
The present value of an annuity due at:
12% for 10 years is 6.32825
10% for 10 years is 6.75902
The present value of $1 at
12% for 10 years is 0.3220
10% for 10 years is 0.3855
O A. $67,590
O B. $69,518
OC $71,445
OD. $61,446
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