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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 IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC uses to calculate lease payment amounts. Amortization is recorded on a straight-line basis at the end of each fiscal year. The fair value of the equipment is $3 million.

Required -

1. Determine the present value of the lease payments at June 30, 2021 that Georgia-Atlantic uses to record the right-of-use asset and lease liability.

2. What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2021?

3. What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2021?

Reference no: EM133041019

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