Red Co. recorded a right-of-use asset of $140,000 in a 10-year finance lease. Payments of $22,784 are made annually at the end of each year. The interest rate charged by the lessor and known by Red was 10%. The balance in the lease payable after two years will be: (Round your final answer to the nearest whole dollar.)

$121554

Explanation:

Lease liability = $140,000

Less: Lease liability in 1st year= $8784

Lease payable after one year = $131216

Less: Lease liability in 2nd year = $9662.40

Lease payable after 2nd year = $121553.60 = $121554

Note:

Lease liability in 1st year:

= $22,784 - (10% × $140000)

= $22784 - $14000

= $8784

Lease liability in 2nd year:

= $22784 - (10% × $131216)

= $22784 - $13121.60

= $9662.40

disadvantages of leasing a vehicle: no vehicle equity and mileage limitations

disadvantages of purchasing a vehicle: large down payment and vehicle depreciation

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