M & O Company is preparing an Excel spreadsheet for a 5-year finance lease. The implicit interest rate in the lease is 6%. The beginning of the lease is January 1. Lease payments are made each December 31. A portion of the spreadsheet appears as follows:
- What formula should M & O use in cell E8 to calculate the carrying value of the lease payable after the second lease payment?
A) =E7-D8
B) =E7+D8
C) =E8+D8
D) =PV(C2,C3,0,C1,type)

Question

M & O Company is preparing an Excel spreadsheet for a 5-year finance lease. The implicit interest rate in the lease is 6%. The beginning of the lease is January 1. Lease payments are made each December 31. A portion of the spreadsheet appears as follows: 
- What formula should M & O use in cell E8 to calculate the carrying value of the lease payable after the second lease payment?
A) =E7-D8 
B) =E7+D8 
C) =E8+D8 
D) =PV(C2,C3,0,C1,type)

Quizplus · Accepted Answer

The balance declines by the excess of the lease payment over the interest expense. So, the carrying value of the lease liability at the end of the second year will be equal to its carrying value at the beginning of the period (E7) minus that reduction (D8).

M & O Company Is Preparing an Excel Spreadsheet for a 5-Year