The lease is for 8 years beginning on January, 2009. Annual lease payments are 2
ID: 2647891 • Letter: T
Question
The lease is for 8 years beginning on January, 2009.
Annual lease payments are 2000$, and are due at the beginning of each year starting on January 2, 2009.
The economic life of the machine is estimated to be ten years. however, the machine is expected to have a salvage value of 1400$ at the end of the eight year lease term
The cost of the asset to the lessor is 12390$ and the interest rate implicity in the lease is 10 per cent
The lessee is a reasonable credit risk, and because the lessee is responsible for all executory costs, there are no unreimbursable costs anticipated by the lessor
3. At what value would the lease be shown on the lessee's financial statements?
Thank you
Explanation / Answer
Year Lease Rent Salavage Value Net Cash Flow Present Value Factor@ 10% Present Value 0 2000 0 2000 1 2000 1 2000 0 2000 0.909 1818 2 2000 0 2000 0.826 1652 3 2000 0 2000 0.751 1502 4 2000 0 2000 0.683 1366 5 2000 0 2000 0.621 1242 6 2000 0 2000 0.564 1128 7 2000 0 2000 0.513 1026 8 0 1400 -1400 0.467 -653.8 Value of Lease 11080.2
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