On January 1, 2014, 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, 2014. Luke accounted for the lease as a capital lease. Using a rate of 9%, Luke determined the present value on January 1, 2014, to be $169,589. What is the amount of the long-term lease obligation that Luke should report on its December 31, 2015 balance sheet?

Question

Quizplus · Accepted Answer

The present value of the remaining lease payments after two years (2014 and 2015) is calculated using the remaining three payments of $40,000 each, discounted at 9%.