Reference no: EM132881015

On January 1, 2020, AMARA Company leased a building from a lessor with the following information:

Annual rental payable at the end of each year 1,500,000

Initial direct cost paid 500,000

Lease incentive received 200,000

Leasehold improvement 240,000

Purchase option that is reasonably certain to be exercised 600,000

Lease term 5 years

Useful life of building 10 years

Implicit rate 11%

PV of an ordinary annuity of 1 for 5 periods at 11% 3.70

Present value of 1 for 5 periods at 11% 0.59

Problem 1. What is the cost of the right of use asset?

a. 6,204,000

b. 6,254,000

c. 6,774,000

d. 6,304,000

Problem 2. What is the interest expense for the current year?

a. 649,000

b. 649,440

c. 749,000

d. 749,440

Problem 3. What is the lease liability at year-end?

a. 4,053,000

b. 4,053,440

c. 5,053,000

d. 5,053,440