For the following lease, determine the amount the ROU asset will be initially measured at assuming that the company does not elect to use the practical expedient available to it.
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at end of } \
\text { year) }
\end{array} & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \\hline \begin{array}{l}
\text { Implicit rate (not readily } \
\text { determinable by lessee) }
\end{array} & 8 \% \
\hline \begin{array}{l}
\text { Non-lease costs included in } \
\text { annual payment }
\end{array} & 5,000 \
\hline
\end{array}$

A)64,443
B)67,876
C)83,397
D)87,840

Question

For the following lease, determine the amount the ROU asset will be initially measured at assuming that the company does not elect to use the practical expedient available to it. 
$\begin{array}{|l|l|}
\hline \begin{array}{l}
\text { Annual payment (due at end of } \
\text { year) }
\end{array} & \$ 22,000 \
\hline \text { Lease term } & 5 \
\hline \text { Incremental borrowing rate } & 10 \% \\hline \begin{array}{l}
\text { Implicit rate (not readily } \
\text { determinable by lessee) }
\end{array} & 8 \% \
\hline \begin{array}{l}
\text { Non-lease costs included in } \
\text { annual payment }
\end{array} & 5,000 \
\hline
\end{array}$

A)64,443
B)67,876
C)83,397
D)87,840

Quizplus · Accepted Answer

The ROU asset is initially measured at the present value of the lease payments, excluding non-lease costs, discounted at the incremental borrowing rate. The present value of the lease payments is calculated as follows:PV = $22,000 x (PVIFA 10%, 5) = $22,000 x 3.7908 = $83,397The ROU asset is therefore initially measured at $83,397.

For the Following Lease, Determine the Amount the ROU Asset