Exercise 21A-5 a-c (Part Level Submission) Splish Brothers Leasing Company signs

Question

Exercise 21A-5 a-c (Part Level Submission) Splish Brothers Leasing Company signs an agreement on January 1, 2017, to lease equipment to Cole Company. The following information relates to this agreement. 1. The term of the non-cancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years. 2. The cost of the asset to the lessor is $401,000. The fair value of the asset at January 1, 2017, is $401,000. 3. The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $22,050, none of which is guaranteed 4. The agreement requires equal annual rental payments, beginning on January 1, 2017 5. Collectibility of the lease payments by Splish Brothers is probable. Click here to view the factor table. (a) Your answer is correct. Assuming the lessor desires a 8% rate of return on its investment, calculate the amount of the annual rental payment required. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and the final answer to O decimal places e.g. 5,275.) Amount of the annual rental payment77534 Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Annual lease payment plus URV Interest Recovery of lease receivable Lease receivable 01-01-2017 401000 01-01-2017 77534 0 77534 323466 01-01-2018 77534 25877 51657 271809 01-01-2019 77534 21745 55789 216020 01-01-2020 77534 17282 60252 155768 01-01-2021 77534 12461 65073 90695 01-01-2022 77534 7256 70278 20417 12/31/2022 22050 1633 20417 0 487254 86254 401000

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