On December 31, 2020, Oxtongue Inc. leased machinery with a fair value of $420,000 from...
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On December 31, 2020, Oxtongue Inc. leased machinery with a fair value of $420,000 from Algonquin Rentals. The agreement is a six-year non-cancellable lease requiring annual payments of $80,000 beginning December 31, 2020. The lease is appropriately accounted for by Oxtongue as a finance lease. Oxtongues incremental borrowing rate is 11%; however, they also know that the interest rate implicit in the lease payments is 10%. Oxtongue adheres to IFRS.
The present value of an annuity due for 6 years at 10% is 4.7908.
The present value of an annuity due for 6 years at 11% is 4.6959.
On its December 31, 2020 statement of financial position, Oxtongue should report a lease liability of (rounded to the nearest dollar)
Select one:
a. $383,264
b. $303,264
c. $375,672
d. $340,000
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