Under a five-year lease, Flash Co. purchased a piece of plant on October 1, 20X4. According to the provisions of the agreement, a $2 million down payment is required at the beginning of the lease, and $25,272,000 is the present value of the remaining lease payments as of that date. For a period of five years, annual rentals totalling $6 million are due on September 30 of each year. An implicit 5% annual rate of interest was included in the agreement. In the financial position statement of Flash Co. as of September 30, 20X5, what is the current liability for the leased plant? a.$5,963,300b.$3,563,329c.$4,987,220d.$4,963,249

To calculate the current liability for the leased plant, we need to determine the portion of the lease liability that will be paid within the next year.

Here are the steps:

1. Calculate the total lease liability at the beginning of the lease. This is the sum of the down payment and the present value of the remaining lease payments: $2,000,000 +$25,272,000 = $27,272,000.

2. Calculate the interest expense for the first year. This is 5% of the total lease liability: $27,272,000 * 0.05 =$1,363,600.

3. Calculate the lease payment made at the end of the first year. According to the question, this is $6,000,000.

4. Calculate the reduction in the lease liability due to this payment. This is the lease payment minus the interest expense: $6,000,000 -$1,363,600 = $4,636,400.

5. Subtract this reduction from the total lease liability to find the lease liability at the end of the first year: $27,272,000 -$4,636,400 = $22,635,600.

6. Calculate the interest expense for the second year. This is 5% of the lease liability at the end of the first year: $22,635,600 * 0.05 =$1,131,780.

7. The current liability for the leased plant is the lease payment due at the end of the second year minus the interest expense for the second year: $6,000,000 -$1,131,780 = $4,868,220.

So, the answer closest to this calculation is d. $4,963,249.

To calculate the current liability for the leased plant, we need to determine the portion of the lease liability that will be paid within the next year.

Here are the steps:

1. Calculate the total lease liability at the beginning of the lease. This is the sum of the down payment and the present value of the remaining lease payments: $2,000,000 +$25,272,000 = $27,272,000.

2. Calculate the interest expense for the first year. This is 5% of the total lease liability: $27,272,000 * 0.05 =$1,363,600.

3. Calculate the lease payment made at the end of the first year. This is given as $6,000,000.

4. Calculate the reduction in the lease liability due to this payment. This is the lease payment minus the interest expense: $6,000,000 -$1,363,600 = $4,636,400.

5. Subtract this reduction from the total lease liability to get the lease liability at the end of the first year: $27,272,000 -$4,636,400 = $22,635,600.

6. Calculate the interest expense for the second year. This is 5% of the lease liability at the end of the first year: $22,635,600 * 0.05 =$1,131,780.

7. The current liability for the leased plant is the lease payment for the second year minus this interest expense: $6,000,000 -$1,131,780 = $4,868,220.

So, the answer is not listed among the options given. There might be a mistake in the question or in the provided options.