On January 1, 2020, Gold Company entered into a 5-year lease of a floor of a building with the following terms: Annual rental for the first two years payable at thend of each year 200,000 Annual rental the next three years payable at the end of each year 300,000 Initial direct cost paid by lease 100,000 Leasehold improvement 250,000 Present value of restoration cost required by contract 50,000 Useful life of building 20 years Implicit interest rate 8% Discount rate for the restoration cost 5% PV of an ordinary annuity of 1 at 8% for two periods 1.783 PV of an ordinary annuity of 1 at 8% for three periods 2.577 PV of 1 at 8% for two periods 0.857 Required: 1. Compute the lease liability on January 1,2020. 2. Compute the cost of right of use asset.
Problem 11-2
On January 1, 2020, Gold Company entered into a 5-year lease of a floor of a building with the following terms:
Annual rental for the first two years payable
at thend of each year 200,000
Annual rental the next three years payable
at the end of each year 300,000
Initial direct cost paid by lease 100,000
Leasehold improvement 250,000
Present value of restoration cost required by contract 50,000
Useful life of building 20 years
Implicit interest rate 8%
Discount rate for the restoration cost 5%
PV of an ordinary annuity of 1 at 8% for two periods 1.783
PV of an ordinary annuity of 1 at 8% for three periods 2.577
PV of 1 at 8% for two periods 0.857
Required:
1. Compute the lease liability on January 1,2020.
2. Compute the cost of right of use asset.
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