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Determine the present value of the lease payments

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Question - On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $468,683 over a 5-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10.0%, the same rate Builders used to calculate lease payment amounts.

Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3.8 million.

1. Determine the present value of the lease payments at June 30, 2011 that Georgia-Atlantic used to record the leased asset and lease liability.

2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2011?

3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2011?

Reference no: EM132611836

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