Problem:
On January 1, 2013, Packard Corporation leased equipment to Hewlitt Company. The lease term is 10 years. The first payment of $453,000 was made on January 1, 2013. Remaining payments are made on December 31 each year, beginning with December 31, 2013. The equipment cost Packard Corporation $2,928,800. The present value of the minimum lease payments is $3,168,800. The lease is appropriately classified as a sales-type lease.
Requirement:
Question: Assuming the interest rate for this lease is 9%, what will be the balance reported as a liability by Hewlitt in the December 31, 2014, balance sheet?
Note: Be sure to show how you arrived at your answer.