Pisa, Inc. leased equipment from Tower Company under a four-year lease requiring equal annual payments of $344,152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Assuming that this lease is properly classified as a finance lease, what is the amount of Lease Liability reduction recorded in first year after the lease inception.                                                 PV Annuity Due         PV Ordinary Annuity             8%, 4 periods                     3.57710                          3.31213             10%, 4 periods                   3.48685                          3.16986

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Q: what is the amount recorded for the leased asset at the lease inception?

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A: working note:   1. first, we would consider PV ANNUITY DUE i.e., 3.57710 $344,152*3.57710…

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A: The right to use an asset is the right of the lessee to use an asset over the life of the lease.

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Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.