Determine the present value of the lease payments

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Question - On June 30, 2009, Blue, Inc. leased a machine from Big Leasing Corporation. The lease agreement qualifies as a capital lease and calls for Blue to make semi-annual lease payments of $281,454 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2009. Blue's incremental borrowing rate is 10%, the same rate Big uses to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year.

Required:

1. Determine the present value of the lease payments at June 30, 2009 (to the nearest $000) that Blue uses to record the leased asset and lease liability.

2. What would be the pretax amounts related to the lease that Blue would report in its balance sheet at December 31, 2009?

3. What would be the pretax amounts related to the lease that Blue would report in its income statement for the year ended December 31, 2009?

Reference no: EM131772404

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