Question

that a t's use sor's fis A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000 over a five-year lease term (also the asset's useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. (FV of $1. PV of $1. FVA of $1. PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) points t that It's use cal ye A Print Required: a. Determine the present value of the lease upon the lease's inception. b. Create a partial amortization through the first payment on January 1, 2017. c. If the lessee's fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)? ws. Complete this question by entering your answers in the tabs below. Required A Required B Required C that et's us sor's Create a partial amortization through the first payment on January 1, 2017. (Enter alla answers to nearest whole number.) Effective Interest Decrease in balance Outstanding balance Date 01/01/2016 01/01/2016 01/01/2017 GROW < Prey 4 of 9 Next >

Answer 1

Solution a:

Present value of lease on lease inception = $20,000 * Cumulative PV factor at 5% for 5 periods of annuity due

= $20,000 * 4.54595 = $90,919

Solution b:

Payment Date	Lease payments	Effective interest	Decrease in balance	Lease balance
1-Jan-16				$90,919
1-Jan-16	$20,000	$0	$20,000	$70,919
1-Jan-17	$20,000	$3,546	$16,454	$54,465

Solution c:

Impact on pretax income related to lease
Interest expense	$3,546
Amortization Expense ($90,919/5)	$18,184
Total Expense	$21,730