On January 1, 2010, Rayma Co.leased equipment by signing a five-year lease that required five payments of $30, 000 due on January 1 of each year with the first payment due January 1, 2010.The equipment remains the property of the lessor at the end of the lease and Rayma does not guarantee any residual value.Using a 10% cost of capital, Rayma capitalized the lease on January 1, 2010, in the amount of $125, 096.What is the amount of current portion of the lease liability Rayma should report on the December 31, 2011, balance sheet?
A)$ 7, 461
B)$20, 490
C)$22, 539
D)$30, 000

Question

Quizplus · Accepted Answer

The current portion of the lease liability is the amount of the lease payment due within the next year. Since Rayma capitalized the lease at $125,096 using a 10% discount rate, the annual lease payment is $30,000. The first payment reduces the liability, and the remaining balance accrues interest. By December 31, 2011, two payments have been made (January 1, 2010, and January 1, 2011), and interest has been accrued for two years on the decreasing balance. The current portion is the next payment due (January 1, 2012), which includes principal and interest. The exact calculation involves amortizing the lease liability to find the balance after two payments and then determining the portion of the next payment that reduces this balance. The correct answer, given the options and the context, is the one that closely aligns with the calculation of the lease liability's reduction after two payments and the interest accrued, which is $22,539. This reflects the portion of the lease liability that will be paid within the next year, considering the payments made and interest accrued up to December 31, 2011.