Red Co.recorded a right-of-use asset of $100,000 in a 10-year Type A lease.Payments of $16,275 are made annually at the end of each year.The interest rate charged by the lessor was 10%.Under the new ASU,the balance in the lease payable after two years will be:
A)$ 80,000.
B)$ 86,823.
C)$116,309.
D)$121,000.

Question

Quizplus · Accepted Answer

Using the Type A lease table in ASC 842-30-45-4, we can calculate the lease liability for the remaining eight years:

PV of lease payments = $16,275 x [(1 - (1 + 0.1)^-8) / 0.1] = $86,823.28

To get the balance in the lease payable after two years, we need to discount the lease liability to the end of year 2:

Balance in lease payable after 2 years = $86,823.28 x (1 + 0.1)^-2 = $70,035.95

Therefore, the correct answer is B) $86,823.

Red CoRecorded a Right-Of-Use Asset of $100,000 in a 10-Year Type