Lease Liability Balance Calculation with Implicit Interest Rate of 6%
What amount should the company report as the lease liability balance on its balance sheet on December 31, Year 3?
A. $22,642
Answer:
$22,642
Let's calculate the lease liability balance for the company on December 31, Year 3 with an implicit interest rate of 6%.
The lease payments and outstanding liabilities for each year are as follows:
Year 1:
Opening liability: $107,163
Cash payment: $24,000
Outstanding liability: $83,163
Interest expense: $4,990
Closing liability: $88,153
Year 2:
Opening liability: $88,153
Cash payment: $24,000
Outstanding liability: $64,153
Interest expense: $3,849
Closing liability: $68,002
Year 3:
Opening liability: $68,002
Cash payment: $24,000
Outstanding liability: $44,002
Interest expense: $2,640
Closing liability: $46,642
Based on the calculations, the lease liability balance the company should report on December 31, Year 3 is $22,642.