[jdl]

**On the below problem- I’m having difficulties on how they obtain the present value of the lease payments. Thanks everyone for the help!

Summer, Inc., (lessee) entered into an 8-year operating lease on January 1, Year 1. Annual lease payments begin December 31, Year 1. They are $55,000 for Years 1-7 with a final payment in Year 8 of $100,000. The rate implicit in the lease of 8% is known to Summer.
The present value of 1 at 8% for 8 years is 0.540.

The present value of an ordinary annuity at 8% for 8 years is 5.747.

What is the amortization amount of the right-of-use asset in Year 1 for Summer, Inc.?
A. $33,394

B. $27,769
C. $60,625
D. $27,231