Question

help me please,

On September 30, 2018, Truckee Garbage leased equipment from a supplier and agreed to pay $141,000 annually for 15 years beginning September 30, 2019. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Truckee recorded a $1,170,898 lease liability. (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.)

Required:
Determine the interest rate implicit in the lease agreement. (Round your answer to 1 decimal place.)

Thank you!

Answer 1

Particulars	Amount ($)
Lease liability recorded at the inception of lease	1170898
Annual lease payment	141000
Lease term	15 years
Implicate rate of interest calculation
PV factor over the 15 years
Lease liability recorded at the inception of lease	1170898
Annual lease payment	141000
PV factor	8.30424113
We know, that PV factor at 15 years for
8% per annum	8.55947869
9% per annum	8.06068843
Thus, the interest rate implicit shall be between 8% and 9%
Interest rate implicit is:
	8.54%

Workings:

PV factors @8% and 9% per annual interest rates.

0.909	0.826	0.751	0.683	0.621	0.564545455	0.5132231	0.466566	0.424151	0.385592	0.350538	0.318671	0.289701	0.263365	0.239422	7.605776
	0.826363636									0.350538
0.9174312	0.841679993	0.772183	0.70842521	0.64993139	0.596267327	0.5470342	0.501866	0.460428	0.422411	0.387533	0.355535	0.326179	0.299246	0.274538	8.060688
0.08	1.08
0.9259259	0.85733882	0.793832	0.73502985	0.6805832	0.630169627	0.5834904	0.540269	0.500249	0.463193	0.428883	0.397114	0.367698	0.340461	0.315242	8.559479