question archive On October 1, 2021, Sonoma Company leased equipment from Napa Inc
On October 1, 2021, Sonoma Company leased equipment from Napa Inc
Subject:AccountingPrice:2.89 Bought3
On October 1, 2021, Sonoma Company leased equipment from Napa Inc. in lease payable in five equal annual payments of $540,000, beginning Oct 1, 2022. Similar transactions have carried an 11% interest rate. The right-of-use asset would be recorded at: (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
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Right to use asset = Lease Liability + Direct Costs incurred + Prepayments - Lease Incentives
Lease Liability = Present of Value of Lease Payments
= Present Annuity factor @11% for 5 periods * $540000
= 3.6959 * $540000
= $1995786
Therefore, Right to use asset = $1995786
