On January 1, Year 1, White Co. Sold a property with a remaining useful life of 20 years to Blue Co. For $900,000. At the same time, White entered into a contract with Blue for the right to use the property (leaseback) for a period of 6 years, with annual rental payments of $80,000 that approximate the market rental payments for similar properties. On January 1, Year 1, the carrying amount of the property was $680,000, and its fair value was $770,000. A discount rate for the lease of 10% is used by both White and Blue. The present value factor for an ordinary annuity at 10% for 6 periods is 4. 3553. The lease does not transfer the property to White at the end of the lease term and does not include a purchase option. What amount of lease expense for the right of use of the property is recognized by White in Year 1

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22-03-2022
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On January 1, Year 1, White Co. Sold a property with a remaining useful life of 20 years to Blue Co. For $900,000. At the same time, White entered into a contract with Blue for the right to use the property (leaseback) for a period of 6 years, with annual rental payments of $80,000 that approximate the market rental payments for similar properties. On January 1, Year 1, the carrying amount of the property was $680,000, and its fair value was $770,000. A discount rate for the lease of 10% is used by both White and Blue. The present value factor for an ordinary annuity at 10% for 6 periods is 4. 3553. The lease does not transfer the property to White at the end of the lease term and does not include a purchase option. What amount of lease expense for the right of use of the property is recognized by White in Year 1

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anthougo anthougo · Answer 1 · 2022-03-24T14:34:33+01:00

The amount of lease expense for the right-of-use property is $34,842.09.

What is the right-of-use asset?

The right-of-use asset is the lessee's right to use an asset over the lease term.

The amount of the right-of-use asset is determined by calculating the present value of the periodic lease payments, using an online finance calculator as follows.

Data Analysis and Calculations:

Cash $900,000

Asset $680,000

Gain from sale $220,000

Right of use asset $348,420.86

Lease Liability $348,420.86

N (# of periods) = 6 years

I/Y (Interest per year) = 10%

PMT (Periodic Payment) = $80,000

FV (Future Value) = $0

Results:

PV = $348,420.86

Lease expense for the first year = $34,842.09 ($348,420.86/10)

Sum of all periodic payments = $480,000 ($80,000 x 6)

Total Interest = $131,579.14

Thus, the amount of lease expense for the right-of-use property is $34,842.09.

Learn more about the right-of-use asset at https://brainly.com/question/15827905