Exercise 21B-6 (Part Level Submission) Buffalo Company, a machinery dealer, leas

Question

Exercise 21B-6 (Part Level Submission) Buffalo Company, a machinery dealer, leased a machine to Dexter Corporation on January 1, 2017. The lease is for an 8-year period and requires equal annual payments of $34,869 at the beginning of each year. The first payment is received on January 1, 2017. Buffalo had purchased the machine during 2016 for $154,000. Collectibility of lease payments is reasonably predictable, and no important uncertainties surround the amount of costs yet to be incurred by Buffalo. Buffalo set the annual rental to ensure an 12% rate of return-The machine has an economic life of 10 years with no residual value and reverts to Buffalo at the termination of the lease Click here to view factor tables (a) Compute the amount of the lease receivable. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answer to O decimal places e.g. 58,971.) The amount of the lease receivable s

Explanation / Answer

Year Discounting Factor Lease Payment Discounted Lease Payment Beginning of the first Year 1/1.1^0 1 34869 34869 Beginning of the second Year 1/1.12^1 0.892857143 34869 31133.03571 Beginning of the third Year 1/1.12^2 0.797193878 34869 27797.35332 Beginning of the fourth Year 1/1.12^3 0.711780248 34869 24819.06546 Beginning of the fifth Year 1/1.12^4 0.635518078 34869 22159.87988 Beginning of the sixth Year 1/1.12^5 0.567426856 34869 19785.60703 Beginning of the seventh Year 1/1.12^6 0.506631121 34869 17665.72056 Beginning of the eighth Year 1/1.12^7 0.452349215 34869 15772.96479 The Amount of Lease Receivable 194002.6268

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