Chapter 6, Problem 6.19E

1.

To determine

Present Value:

The value of today’s amount to be paid or received in the future at a compound interest rate is called as present value. The following formula is used to calculate the present value of an amount:

$\text{Present value of an amount = }\frac{\text{Future value}}{{\left(\text{1 + interest rate}\right)}^{\text{number}\text{of}\text{periods}}}$

Lease

Lease is a contractual agreement whereby the right to use an asset for a particular period of time is provided by the owner of the asset to the user of the asset. The owner, who possesses the asset, is termed as ‘Lessor’ and user, to whom the right is transferred to, is termed as ‘Lessee’.

To determine: The amount to be record the lease liability on June 30, 2016 assuming the first payment will be made on June 30, 2017.

(2)

To determine

The amount of lease liability on June 30, 2016, before any payments are made.