Reference no: EM133065350
Question - At the beginning of current year, Southstar Company leased a building with the following information:
Annual fixed payment in advance at the beginning of each lease year 1,000,000
Initial direct cost paid 350,000
Lease incentive received 150,000
Lease bonus paid to lessor before commencement of lease 100,000
Present value of cost of restoring the building as required by contract discounted at 6% 200,000
Purchase option that is not reasonably certain to be exercised 300,000
Lease term 5 years
Useful life of building 8 years
Implicit interest rate 8%Present value of an annuity of 1 in advance at 8% for 5 periods 4.31
Present value of 1 at 8% for 5 periods 0.681.
1. What is the initial lease liability?
a. 4,514,000 b. 4,310,000 c. 4,614,000d. 4,764,000
2. What is the cost of right of use asset?
a. 4,814,000 b. 4,810,000 c. 4,710,000 d. 4,610,000
3. What is the annual depreciation?
a. 912,800 b. 588,750 c. 962,000 d. 601,250
4. What total amount should be reported as interest expense for the current year?
a. 344,800 b. 205,984 c. 264.800 d. 276,800
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