Question

CH 15 Homework Saved 5 King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $51,023 over a seven-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%. The asset being leased cost Mann $260,000 to produce. (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.) 1.42 points Required: 1. Determine the price at which the lessor is "selling" the asset (present value of the lease payments) 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 ignore taxes)? eBook Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 Determine the price at which the lessor is "selling" the asset (present value of the lease payments). (Round your intermediate and final answers to the nearest whole dollar.) References PV factors based on Table or Calculator function: Lease Payment PVAD of $1 $ 51,023 i = 5.0% 310,000 PV of Lease Payments PS Required 1 Required 2 > H15 Homework Seved King Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $51,023 over a seven-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%. The asset being leased cost Mann $260,000 to produce. (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.) ints Required: 1. Determine the price at which the lessor is "selling the asset (present value of the lease payments) 2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? eBook Complete this question by entering your answers in the tabs below. Print Required 1 Required 2 References What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? (Input decreases to income as negative amounts. Round your intermediate and final answers to the nearest whole dollar.) Income Statement For the year ended December 31 Income statement effect < Required 1 Required 2 >

Answer 1

Solution 1:

PV Factor based on
Table or Calculator function	PVAD of $1
Lease Payment	$51,023
n=	7
i=	5.00%
PV factor	6.07569
PV of lease payments	$310,000

Solution 2:

Income Statement
For the year ended Dec 31
Particulars	Amount
Sales Revenue	$310,000.00
Cost of goods sold	-$260,000.00
Interest revenue [($310,000 - $51,023)*5%]	$12,949.00
Income Statement effect	$62,949.00