On January 1, 2010, Rayma Co.leased equipment by signing a six-year lease that required six 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 an 8% cost of capital, Rayma capitalized the lease on January 1, 2010, in the amount of $149, 781.What is the total amount of lease liability (including interest)Rayma should report as of December 31, 2011?

Question

Quizplus · Accepted Answer

To calculate the lease liability, we need to first calculate the present value of the lease payments as of January 1, 2010, using the 8% cost of capital:

PV of lease payments = $30,000 x (1 - 1/(1+0.08)^6) / 0.08 = $149,781

This is the amount that Rayma capitalized on January 1, 2010. To calculate the lease liability as of December 31, 2011, we need to determine the remaining balance of the lease payments as of that date. We can do this by calculating the future value of the remaining lease payments as of December 31, 2011, using the 8% cost of capital, and then subtracting that future value from the original present value:

Remaining lease payments = ($30,000 x 5) = $150,000

Future value of remaining lease payments = $150,000 x (1+0.08) = $162,000

Lease liability as of December 31, 2011 = $162,000 - ($149,781 x (1+0.08)^2) = $107,313

Therefore, the total amount of lease liability (including interest) that Rayma should report as of December 31, 2011, is $107,313. The correct answer is B.