Question & Answer: On January 1.2016, Cantor Corporation leased equipment to Max Company. The lease term s 9 years a first payment of $459,000 was made on Janua…..

On January 1.2016, Cantor Corporation leased equipment to Max Company. The lease term s 9 years a first payment of $459,000 was made on January 1. 2016. Remaining payments are made on December 31 each year, beginning with December 31, 2016. The equipment cost Cantor Corporation $2,421,600. The present value of the minimum lease payments is $2.661.600. The lease is appropriately classified as a sales- p se. Assuming the Interest rate for this lease is 13%, what will be the balance reported as a liablity by Max in the December 31, 2017, balance sheet? (Round final answer to the nearest dollar) O $1645.330. O $1.834,830 O $2.202,600 O $2.029,938

Expert Answer

JOURNAL ENTRY AT THE INCEPTION OF LEASE

	Leased asset	$2,661,600
	Lease Liability		$2,661,600

	JOURNAL ENTRY FOR FIRST PAYMENT ON JANUARY 1,2016
	Lease liability	$459,000
	Cash		$459,000

	JOURNAL ENTRY FOR FIRST PAYMENT ON DECEMBER 31,2016

	Lease Liability(459000-286338)	$ 172,662
	Interest expense(13% of (2661600-459000)	$ 286,338
	Cash		$459,000

	LEASE LIABILITY ACCOUNT

	At inception of lease		$2,661,600
.Jan1,2016	First lease payment	$459,000
.Dec. 31,2016	Second lease payment	$172,662
	Ending balance of liability	$ 2,029,938		(2661600-459000-172662)
	Total	$2,661,600	$2,661,600

	Balance Reported as Liability by Max at year end=$2029938

	ANSWER;$2029938

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