Use the information below to answer the following questions.

On December 31, 2017, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2023. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.

Reagan's lease amortization schedule appears below:

-At what amount would Reagan record the right-of-use asset at the beginning of the agreement?
A) $519,115.
B) $429,115.
C) $540,000.
D) $576,000.

Question

Use the information below to answer the following questions.

On December 31, 2017, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2023. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease.

Reagan's lease amortization schedule appears below:

-At what amount would Reagan record the right-of-use asset at the beginning of the agreement?
A) $519,115. 
B) $429,115. 
C) $540,000. 
D) $576,000.

Quizplus · Accepted Answer

The right-of-use asset is recorded at the present value of the lease payments. Choice A, $519,115, is the correct amount, assuming it represents the present value of all lease payments over the term of the lease, calculated using the appropriate discount rate.

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