Question

On January 1, Garcia Supply leased a truck for a four-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $11,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Garcia guaranteeing a $39,800 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $38,600. (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.) What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee? Answer is not 71,748

Answer 1

Calculation of amount to added to right of use asset & lease laibility
Guaranteed value					39800
less: residual value					-38600
balance					1200
present value factor n=4 year, i=5%					0.8227
amount to be added to the right of use assets & lease laibility					987.24
amount to be added to the right of use assets & lease laibility = 987 (Rounded off)

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