Question 1 Crane, Inc. leased equipment from Tower Company under a 4-year lease

Question

Question 1 Crane, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $454152, with the first payment due at lease inception. The lease does not transfer ownership, nor s there a bargain purchase option. The equipment has a 4 year useful ite an mo sa vage value ane Inc. $ incremen al mo ng, ra e s 0% and iterate m it in the lease which ls known by Crane, Inc. is 8%. Assuming that this lease is properly classif ed as a capital lease, what Is the amount of principal reduction recorded when the second lease payment is made in Year 27 Annuity 3.57710 3.31213 896, 4 periods 3.48685 3.16987 1096, 4 periods $454152 $287856 $333815 $360520

Explanation / Answer

Present value of lease payments = 454152*3.57710= 1624547 Interest due on second payment = (1624547-454152)*8%= 93632 Principal reduction on second payment = 454152-93632= 360520 Option 4 is correct

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