Following on from the Wren Co lease (initial liability $199,635, payments of $50,000 annually in arrears, interest at 8%), what current liability for the lease should be shown at the end of year 1? (Round to the nearest dollar.)

Correct answer: D) $36,752

Explanation

Year 1: $199,635 + interest $15,971 - payment $50,000 = $165,606 closing liability. Year 2: $165,606 + interest $13,248 - $50,000 = $128,854. The non-current liability at the end of year 1 is the balance that will still be outstanding after the next payment, $128,854. Current liability = $165,606 - $128,854 = $36,752. This is the capital part of the next payment.