On December 31, 2021, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2029. Equal annual payments of $500,000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Lang 's books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 10% is $2,934,213. Assuming all payments are made on time, the amount that should be reported by Lang Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is

a. $2,727,635.

b. $2,500,397.

c. $2,177,634.

d. $3,000,000.

Question

Business

Brennen Powers

1 January, 17:42

On December 31, 2021, Lang Corporation leased a ship from Fort Company for an eight-year period expiring December 30, 2029. Equal annual payments of $500,000 are due on December 31 of each year, beginning with December 31, 2021. The lease is properly classified as a finance lease on Lang 's books. The present value at December 31, 2021 of the eight lease payments over the lease term discounted at 10% is $2,934,213. Assuming all payments are made on time, the amount that should be reported by Lang Corporation as the total liability for finance leases on its December 31, 2022 balance sheet is

a. $2,727,635.

b. $2,500,397.

c. $2,177,634.

d. $3,000,000.

+4

Answers (1)

Know the Answer?

Jaylee Roach · Answer 1

c. $2,177,634.

Explanation:

The computation of the total liability for financial lease is shown below:

= (Present value of the eight lease payments - equal annual payments) * (1 + discount rate) - equal annual payments

= ($2,934,213 - $500,000) * 1.10 - $500,000

= $2,177,634

We simply applied the above formula so that the total financial lease liability could come