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Determine the principal amount of the lease obligation

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Question - On January 1, Year 1, George Corp. entered into a 7-year lease agreement with Jordan, Inc. for equipment. Annual lease payments of $30,000 are payable at the end of each year. George knows that the lessor expects an 8% return on the lease. George has a 9% incremental borrowing rate. The equipment is expected to have an estimated useful life of 9 years. In addition, a third party has guaranteed to pay Jordan a residual value of $8,000 at the end of the lease.

7 years

8%

9%

Present value of $1

0.583

0.547

Present value of an annuity due

5.623

5.486

Present value of an ordinary annuity

5.206

5.033

Required - In George's September 30, Year 1 balance sheet, determine the principal amount of the lease obligation?

A. $151,516

B. $146,614

C. $150,990

D. $156,180

Reference no: EM133063842

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