Lease Liability Balance Calculation with Implicit Interest Rate of 6%

What amount should the company report as the lease liability balance on its balance sheet on December 31, Year 3?

A. $22,642

Answer:

$22,642

Let's calculate the lease liability balance for the company on December 31, Year 3 with an implicit interest rate of 6%.

The lease payments and outstanding liabilities for each year are as follows:

Year 1:

Opening liability: $107,163

Cash payment: $24,000

Outstanding liability: $83,163

Interest expense: $4,990

Closing liability: $88,153

Year 2:

Opening liability: $88,153

Cash payment: $24,000

Outstanding liability: $64,153

Interest expense: $3,849

Closing liability: $68,002

Year 3:

Opening liability: $68,002

Cash payment: $24,000

Outstanding liability: $44,002

Interest expense: $2,640

Closing liability: $46,642

Based on the calculations, the lease liability balance the company should report on December 31, Year 3 is $22,642.