On January 1, 2020, Naruto Company leased a new machine from Sasuke Company. The following data relate to the lease transaction at the inception of the lease: Lease term 5 years Annual rental payable at beginning of each lease year 500,000 Useful life of machine 10 years Implicit interest rate 10% Present value of an annuity of 1 in advance for 5 periods at 10% 4.17 Present value of annuity of 1 in arrears for 5 periods at 10% 3.79 Fair value of the machine 2,500,000 The lease has no renewal option and the possession of the machine reverts to Sasuke when the lease terminates. At the inception of the lease, Naruto should record a lease liability of
On January 1, 2020, Naruto Company leased a new machine from Sasuke Company. The following data relate to the lease transaction at the inception of the lease: Lease term 5 years Annual rental payable at beginning of each lease year 500,000 Useful life of machine 10 years Implicit interest rate 10% Present value of an annuity of 1 in advance for 5 periods at 10% 4.17 Present value of annuity of 1 in arrears for 5 periods at 10% 3.79 Fair value of the machine 2,500,000 The lease has no renewal option and the possession of the machine reverts to Sasuke when the lease terminates. At the inception of the lease, Naruto should record a lease liability of
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2020, Naruto Company leased a new machine from Sasuke Company. The following data relate to the lease transaction at the inception of the lease:
|
Lease term |
5 years |
|
Annual rental payable at beginning of each lease year |
500,000 |
|
Useful life of machine |
10 years |
|
Implicit interest rate |
10% |
|
Present value of an annuity of 1 in advance for 5 periods at 10% |
4.17 |
|
Present value of annuity of 1 in arrears for 5 periods at 10% |
3.79 |
|
Fair value of the machine |
2,500,000 |
The lease has no renewal option and the possession of the machine reverts to Sasuke when the lease terminates.
At the inception of the lease, Naruto should record a lease liability of
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