On January 1, 2016, Luke, Inc. leased equipment, signing a five-year lease that requires five payments of $40,000 due on January 1 of each year with the first payment due January 1, 2016. Luke accounted for the lease as a capital lease. Using a rate of 9%, Luke determined the present value on January 1, 2016, to be $169,589. What is the amount of the long-term lease obligation that Luke should report on its December 31, 2017 balance sheet?

Question

Quizplus · Accepted Answer

By December 31, 2017, Luke has made three payments, reducing the lease obligation. The present value of the remaining two payments ($40,000 each) at 9% is $101,252.