On December 31, 2019, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2019. The expected residual value of the machinery at the end of the lease term is $9,000, though Escapee does not guarantee any residual value to Terminator. What amount will Escapee record as its lease liability on December 31, 2019, if its incremental borrowing rate is 6% and the implicit rate of the lease is unknown?

Question

On December 31, 2019, Escapee Company leased machinery from Terminator Corporation for an agreed-upon lease term of 3 years. Escapee agreed to make annual lease payments of $17,000, beginning on December 31, 2019. The expected residual value of the machinery at the end of the lease term is $9,000, though Escapee does not guarantee any residual value to Terminator. What amount will Escapee record as its lease liability on December 31, 2019, if its incremental borrowing rate is 6% and the implicit rate of the lease is unknown?

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