On December 31, 2017, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2023. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below: Dec. 31 Payments Interest Decrease in Balance Outstanding Balance 2017 $ 519,115 2017 $ 90,000 $ 90,000 429,115 2018 $ 90,000 $ 17,165 72,835 356,280 2019 $ 90,000 14,251 75,749 280,531 2020 $ 90,000 11,221 78,779 201,752 2021 $ 90,000 8,070 81,930 119,822 2022 $ 90,000 4,793 85,207 34,615 2023 $ 36,000 1,385 34,615 0 What is the balance of the lease liability on Reagan's December 31, 2019, balance sheet (after the third lease payment is made)?

Reagan Inc.

The balance of the lease liability on Reagan's December 31, 2019 Balance Sheet (after the third lease payment is made) is $280,531 .

Explanation:

a) Data:

Reagan's lease amortization schedule appears below:

                             Payments       Interest       Decrease       Outstanding

                                                                         in Balance         Balance

                                                                                                  $ 519,115

Dec. 31  2017      $ 90,000                               $ 90,000           429,115

            2018       $ 90,000      $ 17,165               72,835         356,280

            2019       $ 90,000         14,251               75,749          280,531

           2020       $ 90,000          11,221               78,779          201,752

           2021        $ 90,000          8,070               81,930           119,822

          2022        $ 90,000          4,793              85,207             34,615

          2023        $ 36,000           1,385               34,615                     0

b) Reagan's lease liability is the amount that is due to Silver Leasing Co. for the equipment which Reagan Inc. leased on December 31, 2017.  It is shown as the outstanding balance or balance to be paid to the lessor.

the correct answer is b.)

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