Determine the present value of the lease payments


Questions:

On June 30, 2013, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2013. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3 million.

Required:

1. Determine the present value of the lease payments at June 30, 2013 (to the nearest $000) that Georgia-Atlantic uses to record the leased asset and lease liability.

2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2013?

3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2013?

Solution Preview :

Prepared by a verified Expert
Accounting Basics: Determine the present value of the lease payments
Reference No:- TGS02032038

Now Priced at $20 (50% Discount)

Recommended (96%)

Rated (4.8/5)