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What is the amount of principal reduction recorded

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Question 1: Ivanhoe, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $244152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Ivanhoe, Inc.'s incremental borrowing rate is 9% and the rate implicit in the lease (which is known by Ivanhoe, Inc.) is 7%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?

PV            Annuity Due PV          Ordinary            Annuity

7%,            4 periods                  3.62432         3.38721

9%,              4 periods                 3.53129        3.23972

Reference no: EM132586317

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