On December 31, 2020, Roque Company leased machinery with a fair value of $1,260,000 from Sage Operations. The agreement is a six-year noncancelable lease requiring annual payments of $240,000 beginning December 31, 2020. Roque accounts for this lease as a finance lease. Roque’s incremental borrowing rate is 11%, but they know that the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. What amount should Roque report as a lease liability on their December 31, 2020 balance sheet?
On December 31, 2020, Roque Company leased machinery with a fair value of $1,260,000 from Sage Operations. The agreement is a six-year noncancelable lease requiring annual payments of $240,000 beginning December 31, 2020. Roque accounts for this lease as a finance lease. Roque’s incremental borrowing rate is 11%, but they know that the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908. The present value of an annuity due of 1 for 6 years at 11% is 4.6959. What amount should Roque report as a lease liability on their December 31, 2020 balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On December 31, 2020, Roque Company leased machinery with a fair value of $1,260,000 from Sage Operations. The agreement is a six-year noncancelable lease requiring annual payments of $240,000 beginning December 31, 2020. Roque accounts for this lease as a finance lease. Roque’s incremental borrowing rate is 11%, but they know that the interest rate implicit in the lease payments is 10%.
The present value of an annuity due of 1 for 6 years at 10% is 4.7908.
The present value of an annuity due of 1 for 6 years at 11% is 4.6959.
What amount should Roque report as a lease liability on their December 31, 2020 balance sheet ?
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