On June 30, 2016, Fly-By-Night Airlines leased a jumbo jet from Boeing Corporation. The terms of the lease require Fly-By-Night to make 20 annual payments of $400,000 on each June 30. Generally accepted accounting principles require this lease to be recorded as a liability for the present value of scheduled payments. Assume that a 7% interest rate properly reflects the time value of money in this situation. Required: 1. At what amount should Fly-By-Night record the lease liability on June 30, 2016, assuming that the first payment will be made on June 30, 2017? 2. At what amount should Fly-By-Night record the lease liability on June 30, 2016, before any payments are made, assuming that the first payment will be made on June 30, 2016?
On June 30, 2016, Fly-By-Night Airlines leased a jumbo jet from Boeing Corporation. The terms of the lease require Fly-By-Night to make 20 annual payments of $400,000 on each June 30. Generally accepted accounting principles require this lease to be recorded as a liability for the present value of scheduled payments. Assume that a 7% interest rate properly reflects the time value of money in this situation. Required: 1. At what amount should Fly-By-Night record the lease liability on June 30, 2016, assuming that the first payment will be made on June 30, 2017? 2. At what amount should Fly-By-Night record the lease liability on June 30, 2016, before any payments are made, assuming that the first payment will be made on June 30, 2016?
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