Homework Answers
The lessee should not recognize the unguarenteed residual value in the computation of minimum lease payments.
Therefore unguarenteed salvage value of $1,500 should not be recognized.
Let the annual lease payments be 'x'.
Given bookvalue of machine $12,000
Given interest rate is 5%.
Present value of all lease payments at 5% should be equal to $12,000
Since first payment is made at the beginning of lease and balance 5 payments at the end of each year then onwards,
x + x * present value annuity factor (5%,5) = $12,000
x + x(4.3295) = 12,000
5.3295x = 12,000
x = 12,000 / 5.3295
x = $2,251.63
Therefore approximate annual lease payment is $2,251.63 (option b)
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