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How much is the lease liability to be recognized by entity x

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Reference no: EM132750071

On January 1, 20x1, Entity X enters into a 3-year lease of equipment for an annual rent of $ 100,000 payable at the end of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation. The relevant present value factors are as follows:

  1. PV of an ordinary annuity of $1 @10%, n=3............ 2.48685
  2. PV of an ordinary annuity of$1 @12%, n=3............ 2.40183

Problem 1: How much is the lease liability to be recognized by Entity X on initial recognition?

a. 252,314
b. 248,685
c. 240,183
d. 0

Reference no: EM132750071

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