(a2) Amirante Inc. manufactures an X-ray machine with an estimated life of 12 ye
ID: 2448995 • Letter: #
Question
(a2)
Amirante Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is $446,636, and its guaranteed residual value at the end of the noncancelable lease term is estimated to be $27,700. The hospital will pay rents of $64,500 at the beginning of each year and all maintenance, insurance, and taxes. Amirante Inc. incurred costs of $240,300 in manufacturing the machine and $15,100 in negotiating and closing the lease. Amirante Inc. has determined that the collectibility of the lease payments is reasonably predictable, that there will be no additional costs incurred, and that the implicit interest rate is 10%.
Explanation / Answer
Lease receivable at inception of the lease Annual rental $64,500 Period 10 years Rate of return 10% PV Factor 5.7590238 Present Value of Annuity $4,35,957 Residual value $27,700 Period 10 years Rate of return 10% PV Factor 0.3855433 Present Value of residual value $10,680 Lease receivable at the inception of the lease $4,46,637 Sales Price Rental payment $64,500 Period 10 years Total rental payment $6,45,000 Cost of sales Manufacturing costts $2,40,300 Less:Present value of residual value $10,680 Cost of sales $2,29,620
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