Reference no: EM132806347

Problem - Studddio Inc. leases a piano from Dr. Piano, a piano sales, lease, and repair company. The lease term is for 5 years, and Studddio must make five annual rent payments of $4,500, beginning on lease commencement and at the start of every year afterward. The present value of these payments is $20,000. The fair value of the piano is $45,000 and the piano has a useful life of 30 years. The piano is not specialized in nature, the contract does not convey ownership of the piano to Studddio at the end of the lease term, and Studddio does not have an option to purchase the piano. Studddio prepaid half of the first year's rent on the date the lease was executed, which was prior to the lease commencement date. Studddio paid an insurance company $800 to guarantee the residual value of the piano. Studddio treated this payment as initial direct costs. Determine the lessee's initial measurement of right-of-use asset?