What red co should report a lease liability of

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Reference no: EM132775858

Problem 1: On December 31, 20X4, Red co. leased a machine from Green co. for a seven-year period. Equal annual payments under the lease are $112,500, including $7,500 annual executory costs, and are due on December 31 of each year. The first payment was made on December 31, 20X4, and the second payment was made on December 31, 20X5. The seven lease payments are discounted at 9% over the lease term. The present value of lease payments at the inception of the lease and before the first annual payment was $576,500. The lease is appropriately accounted for as a finance lease by Red Co. In its December 31, 20X5 balance sheet, Red Co. should report a lease liability of:

A. $408,935

B. $576,500

C. $405,325

D. $525,000

Reference no: EM132775858

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