StatMed Corporation leases medical equipment under a five-year capital lease. The terms of the lease call for five equal payments of $26,000, with the first payment due at the inception. The interest rate implicit in the lease is 11%. At what value is Obligation under Capital Lease recorded at the end of the first year?

Question

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The initial obligation is the present value of the remaining lease payments after the first payment. After the first payment of $26,000, the remaining four payments are discounted at 11%. The present value of these payments is $89,537.

StatMed Corporation Leases Medical Equipment Under a Five-Year Capital Lease