hd PVAD of $1) Skills $2,115,270 O $1,847,950 O $2,500,000. 17.0 QUESTION 15 2 p

Question

hd PVAD of $1) Skills $2,115,270 O $1,847,950 O $2,500,000. 17.0 QUESTION 15 2 points Save Answer Terms of a lease agreement and related facts are: a. Leased asset has a retail cash selling price of $200,000. Its useful life is six years. b. Annual lease payments at the beginning of each year are $41,746, beginning January 1. The lease term is six years c. Lessor's interest rate when calculating annual lease payments w/as 9% d. Direct costs by the lessor of legal and commissions to execute the completed lease are $4,124 ab 17 Required Prepary the appropriate hu ma rentes ohe eae,th etal payment at ts commencement and the Deceer Prepare the appropriate journal entries for the lessor to record the lease, the hitial lease payment at its commencement 31 fiscal year-end under each of the following two independent assumptions: 1. The lessor recently paid $200,000 to acquire the asset. 2. The lessor recently paid $170,000 to acquire the asset. , and at the December 3 (12pt) Arial 3.4.1 eau 10.3

Explanation / Answer

Year PVIF@9% Present Value of Lease Rental Interest 0 41746 1 41746 1 41746 0.91743 38299.08 3446.917 2 41746 0.84168 35136.77 6609.227 3 41746 0.77218 32235.57 9510.428 4 41746 0.70843 29573.92 12172.08 5 41746 0.64993 27132.04 14613.96 Total Present Value of Lease Payment 204123.4 Assumption 1 Lessor paid to aquire the asset 200000 Add : Cost of Legal & commission 4124 Total cost of lease 204124 Date/S. N. Accounts Title & Explanation Debit Credit Amount in $ Amount in $ 1 Lease Receivable 204124 Leased Asset 204124 To record the Lease initially 2 Cash 41746 Lease rental 41746 Lease Rental 41746 Lease Receivable 41746 Interest/Finance charges 0 To record the 1st Lease payment at January 1 3 Cash 41746 Lease rental 41746 Lease Rental 41746 Lease Receivable 38299 Interest/Finance charges 3447 To record the 2nd Lease payment on December 31, Assumption 2 Lessor paid to aquire asset 170000 Add : Cost of Legal & commission 4124 Total cost of lease 174124 We have to either change the rate of Interest or Lease Installment amount to match Revised cost of lease If we Revise Installment then it will come as follow Total cost of lease 174124 PVIFA@9% 4.889651 Revised Installment 35610.72 Schedule will be as follow Year PVIF@9% Interest 0 35610.7 1 35610.72 0 1 35610.7 0.91743 32670.39 2940.3 2 35610.7 0.84168 29972.83 5637.9 3 35610.7 0.77218 27498.01 8112.7 4 35610.7 0.70843 25227.53 10383.2 5 35610.7 0.64993 23144.53 12466.2 213664.3 174124 39540.3 Date/S. N. Accounts Title & Explanation Debit Credit Amount in $ Amount in $ 1 Lease Receivable 174124 Leased Asset 174124 To record the Lease initially 2 Cash 35610.7 Lease rental 35610.72 Lease Rental 35610.7 Lease Receivable 35610.72 Interest/Finance charges 0 To record the 1st Lease payment at January 1 3 Cash 35610.7 Lease rental 35610.72 Lease Rental 35610.7 Lease Receivable 32670.39 Interest/Finance charges 2940.3 To record the 2nd Lease payment on December 31, If we Keep the Annual Lease Payment same, then we need to revise the Interest rate as follow Total cost of lease 174124 Annual Lease Payment 41746 4.171034 PVIFA(Interest Rate, 5) 3.171034 From PVIFA table we get interest rate somehwere between 17% & 18% By Interpolation we get approximate rate of 17%   + 0.392039                        = 17.39% Schedule will be as follow Year PVIF@17.39% Interest 0 41746.0 1 41746 0 1 41746.0 0.8519 35563.32 6182.7 2 41746.0 0.7257 30295.01 11451.0 3 41746.0 0.61819 25807.15 15938.8 4 41746.0 0.52662 21984.11 19761.9 5 41746.0 0.4486 18727.42 23018.6 250476.0 174123 76353.0 Date/S. N. Accounts Title & Explanation Debit Credit Amount in $ Amount in $ 1 Lease Receivable 174124 Leased Asset 174124 To record the Lease initially 2 Cash 41746 Lease rental 41746 Lease Rental 41746 Lease Receivable 41746 Interest/Finance charges 0 To record the 1st Lease payment at January 1 3 Cash 41746 Lease rental 41746 Lease Rental 41746 Lease Receivable 35563.32 Interest/Finance charges 6182.7 To record the 2nd Lease payment on December 31,

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