Computing Lease Liability Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Com

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Computing Lease Liability Lessee Company enters into a 6-year finance lease of non-specialized equipment with Lessor Com

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Computing Lease Liability
Lessee Company enters into a 6-year finance lease ofnon-specialized equipment with Lessor Company on January 1, 2020.Lessee has agreed to pay $72,800 annually beginning immediately onJanuary 1, 2020. The lessor estimates the residual value of theequipment to be $13,000 at lease end, but the lessee has notguaranteed the residual value. The economic life of the asset is 7years. The lessee’s incremental borrowing rate is 7% and thelessor’s implicit rate is not readily determinable by the lesseecompany. What is the value of the lease liability on January 1,2020, assuming that the lease is properly classified as a financelease?
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