LeBron James (LBJ) Corporation agrees on January 1, 2020, to lease equipment from Wildhorse, Inc. for 3 years. The lease calls for annual lease payments of $21,000 at the beginning of each year. The lease does not transfer ownership, nor does it contain a bargain purchase option, and is not a specialized asset. In addition, the useful life of the equipment is 10 years, and the present value of the lease payments is less than 90% of the fair value of the equipment. This lease is properly classified as an operating lease. The credit to Lease Liability on December 31, 2020 is .

interest expense 4,881.08 debit

    lease liability        4,881.08 credit

Explanation:

We solve for the present value of the lease payment and with that we solve forthe interest accrued during the period which will be interest expense debit and lease liability credit.

C21,300

time3

rate0.06

PV$60,351.2638  

lease: +60,351.26

less:    21,000.00 payment

           81,351.26 before interest

interest over the year 81,351.26 x 0.06 = 4,881.08

Missing Information: 6% implicit rate

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