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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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East Company leased a new machine from North Company on May 1, 2019, under a lease with the following information:

Chapter 20, Problem 2MC, East Company leased a new machine from North Company on May 1, 2019, under a lease with the

East has the option to purchase the machine on May 1, 2029, by paying $50,000, which is significantly lower than the expected fair value of t machine on the option exercise date. On May 2019, East should record a right-of-use asset of:

  1. a. $251,500
  2. b. $238,000
  3. c. $224,500
  4. d. $198,000

To determine

Identify the amount that Company E records as a right-of-use asset.

Explanation

Compute the amount that Company E records as a right-of-use asset:

ParticularsAmount ($)
Present value of the annual payments discounted at 14% ($40,000×5.95)$238,000
Present value of the single sum of $50,000 discounted at 14%  (

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