On June 30, 2011, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $585,423 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2011.Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $3.12 million. (Use Table 6)

I need help on how to do this question

To calculate the present value of the lease payments and determine the amount to record as the initial lease liability, you can follow these steps:

Step 1: Determine the number of lease payments. In this case, the lease term is three years, and semiannual payments are made. So, there will be a total of six lease payments (3 years x 2 payments per year).

Step 2: Determine the semiannual lease payment amount. The lease agreement specifies that Georgia-Atlantic will make semiannual lease payments of $585,423. This amount remains the same for each payment.

Step 3: Determine the discount rate. The discount rate to be used for the lease is the incremental borrowing rate, which is given as 10%.

Step 4: Calculate the present value of each lease payment. The present value of each payment is calculated using the semiannual discount rate and the number of periods remaining for each payment. You can use the present value of an ordinary annuity formula to find the present value of each payment:

Present Value = Payment Amount / (1 + Discount Rate) ^ Number of Periods

For example, for the first lease payment due on June 30, 2011, the present value can be calculated as follows:

Present Value = $585,423 / (1 + 0.10)^1

Step 5: Repeat step 4 for each lease payment to calculate the present value of each payment.

Step 6: Calculate the initial lease liability. The initial lease liability is the total present value of all lease payments. Add up the present values calculated in step 5 to get the initial lease liability.

Step 7: Record the lease liability on the balance sheet. The initial lease liability is recorded as a noncurrent liability on the balance sheet.

Step 8: Calculate the lease asset. The lease asset is the fair value of the warehouse, given as $3.12 million.

Step 9: Record the lease asset on the balance sheet. The lease asset is recorded as a noncurrent asset on the balance sheet.

Step 10: Calculate and record annual depreciation expense. The depreciation expense is recorded on a straight-line basis. Divide the difference between the lease asset and lease liability by the lease term (3 years) to calculate the annual depreciation expense.

Step 11: Record the annual depreciation expense on the income statement.

I hope these steps help you in solving the question. If you have any further queries, feel free to ask!

What IS the question and we have no access to Table 6.

Sra