Brief Exercise 21A-8
Kingbird Company is negotiating to lease a piece of equipment to
MTBA, Inc. MTBA requests that the lease be for 9 years. The
equipment has a useful life of 10 years. Kingbird wants a guarantee
that the residual value of the equipment at the end of the lease is
at least $4,000. MTBA agrees to guarantee a residual value of this
amount though it expects the residual value of the equipment to be
only $2,000 at the end of the lease term.
If the fair value of the equipment at lease commencement is
$60,000, what would be the amount of the annual rental payments
Kingbird demands of MTBA, assuming each payment will be made at the
beginning of each year and Kingbird wishes to earn a rate of return
on the lease of 6%? (For calculation purposes, use 5
decimal places as displayed in the factor table provided and round
final answer to 0 decimal places, e.g. 5,275.)
Click here to view the factor table.
Amount of equal annual lease payments | $ |
A | Fair Value of lease | $ 60,000 | |
Less: | |||
B | Present value of garanteed residual value | $ 2,368 | |
($4000*1/1.06^9) | |||
C | Amount to be recovered through periodic payment | $ 57,632 | |
D | PVAD (9 years ,6%) | 7.20979 | |
E | Minimum Lease at the beginning of each year (C/D) | $ 7,994 | |
Brief Exercise 21A-8 Kingbird Company is negotiating to lease a piece of equipment to MTBA, Inc....
Brief Exercise 21A-8 Cardinal Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Cardinal wants a guarantee that the residual value of the equipment at the end of the lease is at least $5,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,500 at the...
Metlock Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Metlock wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,000 at the end of the...
Sage Hill Company is negotiating to lease a piece of equipment to MTBA, Inc. MTBA requests that the lease be for 9 years. The equipment has a useful life of 10 years. Sage Hill wants a guarantee that the residual value of the equipment at the end of the lease is at least $4,000. MTBA agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only $2,500 at the end...
Kingbird Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $49,000, and Kingbird expects the machinery to have a residual value at the end of the lease term of $25,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $47,000 instead...
Tamarisk Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $39,000, and Tamarisk expects the machinery to have a residual value at the end of the lease term of $30,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $37,000 instead...
Skysong Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10years. The machinery has a fair value at the commencement of the lease of $42,000, and Skysong epects the machinery to have a residual value at the end of the lease term of $29,000. However, Thiensville does not guarantee any part of the residual value. Thiensvile does expect that the residual value will be $40,000 instead of...
*Brief Exercise 21-06 Kingbird Company leased equipment from Costner Company, beginning on December 31, 2019. The lease term is 4 years and requires equal rental payments of $32,230 at the beginning of each year of the lease, starting on the commencement date (December 31, 2019). The equipment has a fair value at the commencement date of the lease of $120,000, an estimated useful life of 4 years, and no estimated residual value. The appropriate interest rate is 5%. Click here...
Exercise 21A-6 a-b Kingbird Leasing Company signs a lease agreement on January 1, 2017, to lease electronic equipment to Blossom Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement 1. Blossom has the option to purchase the equipment for $20,500 upon termination of the lease. It is not reasonably certain that Blossom will exercise this option. The equipment has a cost of...
Marin Inc. wishes to lease machinery to Thiensville Company. Thiensville wants the machinery for 4 years, although it has a useful life of 10 years. The machinery has a fair value at the commencement of the lease of $49,000, and Marin expects the machinery to have a residual value at the end of the lease term of $25,000. However, Thiensville does not guarantee any part of the residual value. Thiensville does expect that the residual value will be $47,000 instead...
Kingbird Leasing Company signs a lease agreement on January 1, 2020, to lease electronic equipment to Blossom Company. The term of the non-cancelable lease is 2 years, and payments are required at the end of each year. The following information relates to this agreement: 1. Blossom has the option to purchase the equipment for $26,000 upon termination of the lease. It is not reasonably certain that Blossom will exercise this option. 2. The equipment has a cost of $320,000 and...