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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
On January 1, 2011, Lessee Company entered into a five-year lease which required annual payments of $120,000. The first payment was due at the inception of the lease. The present value of the minimum lease payments to initially record the lease was $500,384; the applicable discount rate was 10%. Lessee Company treated the lease as a capital lease. What is the balance of Lessee Company's lease liability immediately after the January 1, 2012 payment was made?
A. $430,422
B. $260,384
C. $298,422
D. $380,384
Answer
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