ACCA FR · Chapter 6 · Question 4 of 9
On 1 January Finch Co leased equipment for 4 years at $30,000 a year, payable annually in advance starting on 1 January. The interest rate implicit in the lease is 6%, and the 3-year annuity factor at 6% is 2.6730. What is the total lease liability at 31 December of the first year? (Round to the nearest dollar.)
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $85,001
Explanation
The first payment is made at commencement, so it is not part of the lease liability. Liability = PV of the remaining 3 payments = $30,000 x 2.6730 = $80,190. Interest for year 1 at 6% = $4,811, giving $85,001 at 31 December. The next payment of $30,000, due on 1 January, is the current portion.
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