On January 1,2016,Green Co.recorded a right-of-use asset of $270,360 in a Type B lease.The lease calls for ten annual payments of $40,000 at the beginning of each year.The interest rate charged by the lessor was 10%.The balance in the right-of-use asset at December 31,2016,will be:
A)$270,360.
B)$253,396.
C)$243,324.
D)$230,360.

Question

Quizplus · Accepted Answer

Using the Type B lease formula, the right-of-use asset at the end of the first year is calculated as:
ROU asset = (annual lease payment - interest expense) x lease term factor
= ($40,000 - ($270,360 x 10%)) x 9.818
= $253,396