A finance lease agreement calls for quarterly lease payments of $5,900 over a 10
ID: 2400572 • Letter: A
Question
A finance lease agreement calls for quarterly lease payments of $5,900 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the essor are $156,000. Required a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a partial amortization table up to the October 1 payment. (Enter all amounts as positive values.) Lease Payment Effective Decrease in Outstanding Interest Date balance balance July 1 July 1 October1 Required A Required BExplanation / Answer
Answers
Interest/Installment payment = Quarterly = 3 months
Date
Lease Payment
Effective Interest
Decrease in Balance
Outstanding balance
[A = given]
[B]
[C = A – B]
[D = D – C]
Jul-01
$ 156,000.00
Jul-01
$ 5,900.00
$ 3,120.00 [156,000 x 8% x 3/12]
$ 2,780.00
$ 153,220.00
Oct-01
$ 5,900.00
$ 3,064.00 [153,220 x 8% x 3/12]
$ 2,836.00
$ 150,384.00
Interest Expense (Revenue) for October payment = $ 3,064.00 [calculated above]
Date
Lease Payment
Effective Interest
Decrease in Balance
Outstanding balance
[A = given]
[B]
[C = A – B]
[D = D – C]
Jul-01
$ 156,000.00
Jul-01
$ 5,900.00
$ 3,120.00 [156,000 x 8% x 3/12]
$ 2,780.00
$ 153,220.00
Oct-01
$ 5,900.00
$ 3,064.00 [153,220 x 8% x 3/12]
$ 2,836.00
$ 150,384.00
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