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 Topic: Strange lease question ( Topic Closed)
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bryris
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| Posted: 15 Sep 2009 at 13:20 | IP Logged
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Lessee Co enters into an operating lease of a building for 12 years at an annual rental rate of $150,000. Rental payments are due at the beginning of each year. After 7 years, Lessee Co stops using the building, but continues the lease. One year elapses before the company finds a suitable sublessee. The sublessee moves into the building at the beginning of year 8 and pays $135,000 per year (due at beginning of year) through to the end of the lease term (year 12). 4 total years of subleasing.
What is Lessee Co's total adjustment to the liability for continuing costs recognized at the inception of the sublease?
Assume interest rate is 6%.
Annuity Due 4 yrs 3.673
Annuity Due 5 yrs 4.465
Ordinary Annuity 4 yrs 3.465
Ordinary Annuity 5 yrs 4.212
Answer is 78,855 decrease.
I can get as far as determining that the liability decreases TO 55,095. However, I do not know what number the lease is starting at in order to solve the equation.
Gleim states the number I am looking for is: $133,950, but I can find no logic to this at all.
This is an operating lease. Why are we discounting at all? Shouldn't the lessee just record rental payments each year (i.e. no offsetting asset is put onto the books). Assuming this is a typo and they are actually referring to a capital lease - what say you?
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bird
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| Posted: 15 Sep 2009 at 13:48 | IP Logged
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I spent around 10 minutes looking at this. Not sure where the $133,950 comes from. You may have noticed this, but 133950-55095 = 78855.
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bryris
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| Posted: 15 Sep 2009 at 14:21 | IP Logged
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Yeah, I see that, but just don't get it. I've seen a typo or two in Gleim, but never something so far out there that just didn't compute. There MUST be some logic to deriving that answer.
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