Question

Check my work Check My Work button is now disabledItem 8Item 8 2 points Refer to the following lease amortization schedule. The 10 payments are made annually starting with the inception of the lease. Title does not transfer to the lessee and there is no bargain purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment Cash Payment Effective Interest Decrease in balance Balance 87,867 1 13,000 13,000 74,867 2 13,000 7,487 5,513 69,354 3 13,000 6,935 6,065 63,289 4 13,000 6,329 6,671 56,618 5 13,000 5,662 7,338 49,280 6 13,000 4,928 8,072 41,208 7 13,000 4,121 8,879 32,329 8 13,000 3,233 9,767 22,562 9 13,000 ? ? ? 10 13,000 ? ? ? What would the lessee record as annual depreciation on the asset using the straight-line method? (Round your answer to the nearest dollar.)

Answer 1

B4 - x fc Payment the interest rate used in the lease schedule (annual effective interest rate) = 10% Payment I Cash Payment Effective Interest Decrease in balance $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $ 13,000 $0 $ 7,487 $6,935 $6,329 $5,662 $4,928 $4,121 $ 3,233 $ 2,256 $ 1,182 $ 13,000 $5,513 $6,065 $6,671 $ 7,338 $ 8,072 $ 8,879 $ 9,767 $ 10,744 $ 11,818 Balance $ 87,867 $ 74,867 $ 69,354 $63,289 $ 56,618 $ 49,280 $ 41,208 $32,329 $ 22,561 $ 11,818 $0 annual depreciation using straight line method = fair value of asset / lease term annual depreciation using straight line method = $87,867 / 10 annual depreciation using straight line method = $ 8,787

for formulas and calculations, refer to the image below -

- X Fax Payment A the interest rate used in the lease schedule (annual effective interest rate) = =RATE(10,13000,-87867,0,1) Payment Cash Payment Effective Interest Decrease in balance Balance 13000 13000 13000 13000 13000 13000 13000 13000 =F6*10% =F7*10% =F8*10% =F9*10% =F10*10% =F11*10% =F12*10% =F13*10% =F14*10% 13000 =C7-D7 =C8-D8 =C9-09 =C10-D10 =C11-D11 =C12-D12 =C13-D13 =C14-D14 =C15-D15 87867 =F5-E6 =F6-E7 =F7-E8 =F8-E9 =F9-E10 =F10-E11 =F11-E12 =F12-E13 =F13-E14 13000 13000 annual depreciation using straight line method = fair value of asset / lease term annual depreciation using straight line method = $87,867 / 10 annual depreciation using straight line method = =87867/10

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