On January 1, 2018, Gemini Corporation leased equipment under a finance lease designed to earn the lessor a 12% rate of return for providing long-term financing. The lease agreement specified ten annual payments of $225,000 beginning January 1, and each December 31 thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance of the equipment as required for a fee of $15,000 per year. Insurance premiums of $12,000 annually are related to the equipment. Both amounts were to be paid by the lessor and the lease payments reflect both expenditures. At what amount will Gemini record a right-of-use asset? (Round your answer to the nearest whole dollar amount.)

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Gemini is receiving two separate benefits in the lease contract (1) the right to use equipment and (2) maintenance on that equipment. So, payments specified in the lease contract contain a separate lease component (use of equipment for $225,000) and a nonlease component (maintenance of $15,000). The payment for insurance does not transfer to the lessee a separate good or service. Payments for insurance and property taxes are specifically identified in the lease standard as part of the lease payments (to be capitalized) rather than nonlease components (to be expensed separately) if they are fixed amounts in the lease contract. (If the payments will be billed separately, they are separate components of the lease and not included in the lease payments.) So, the right-of-use asset and lease liability (and the lessor's lease receivable) would be measured as the present value of the $210,000 lease payments rather than $225,000.
At the beginning of the lease, Gemini records a right-of-use asset and lease liability for the present value of the ten $210,000 lease payments. For the first payment of $225,000, $15,000 is recorded as maintenance expense and the remaining $210,000 reduces the lease liability. 11ea937b_35e6_7f37_a419_edd2349bb4cc_TB2599_00 ** present value of an annuity due of $1: n = 10, i = 12% 11ea937b_35e6_7f38_a419_1b5074340627_TB2599_00

On January 1, 2018, Gemini Corporation Leased Equipment Under a Finance