Question

square feet of office space from Hardy Properties. The lease begins on August 1, 2019 and expires on July 31, 2024. Because Laurel is a startup with tight cash flows, Hardy proposed the following two payment options: e last payment would be due on 5/1/24. Provide year one rent free. Quarterly payments of $11,121.90 would begin on August 1, 2020. The last payment would be due on 5/1/24 . Required: 1. Prepare an Excel spreadsheet detailing the quarterly payments under both options. Calculate the total payments under both options. Use the NPV function to calculate the present value of both options using a discount rate of 6%. a. b. c. Expand your payment schedules into amortization schedules for the lease liability d. In order to receive credit for you work, you must attach a copy of your Excel under both options. Note that lease liabilities are installment loans in substance. Your schedules should apportion each payment between principal and interest. spreadsheet printed with the formulas showing ("Show Formulas" option). When displaying your answers round all numbers to the nearest dollar amount. 2. Prepare the journal entry to record the November 1, 2020 activity under both options. 3. Which of these two options should Laurel choose? Explain your reasoning.

Answer 1

not much material differnce between the two payment options, so Laurel can choose from either of the two. Payments at start of every quarter Annual discount rate of 6% Equivalent Quartely rate-(1.6%)시 1/4)-1-15% Year 1, Start of Quarter 1& So on 9 Discount factor 10 11 Method 1 12 Payments 13 PV of Payments 4 PV of paymnets- S150,737 -sum of all PVs of payments 15 NPV Formula 16 7 Amortization Schedule 8 Principle Outstanding $142,112 S135,572 $128,936 $122,203 $115,371 $108,439 $101,406 $94,269 $87,027 79,679 $72,223 $64,658 $56,982 $49,193 $41,290 S33,271 S25,134 $16,878 S8,500 19 Interest Payments 20 Princimple Payments $8,625 $6,540 $5,635 $6,733 $6,832 $6,932 $7,034 $7,137$7,242$7,348 74567,565$7,676$7,7897,903 $8,019 $8,137 8,256 $8,377 $8,500 10.99 0.97 0.96 0.94 0.93 0.92 0.90 0.89 0.88 0.86 0.85 0.84 0.83 0.82 0.80 0.79 0.78 0.77 0.76 111+1.5-1/(1+1.5 And so on $8,625 8,625$8,625 $8,625 $8,625 8,625 $8,625$8,625 $8,625 $8,625 8,625 8,625 $8,625 $8,625 $8,625 $8,625 8,625 $8,625 $8,625 $8,625 $8,625 $8,500$8,377$8,256 $8,137 $8,019 $7,903 $7,789 $7,676 $7,565 $7 456 $7,348 $7,242$7,137 $7,034 $6,932 $6,832 $5,733 $6,636 $6,540 150,737 -1st period Payment NPVIQuarterly Discount rate.range of payment values 50 125 S0 $2,085 S1,989 1,892 1,793 $1,693 $1,591 1,488 1,383 1,277 $1,169 1,060 5949 836 $722 369 $248 22 Method 2 23 Payments 24 PV of Payments 25 PV of paymnets$150,842-sum of all PVs of payments 26 NPV Formula 0 $11,1219 $11,121.9 $11,121.9 $11,121.9 $11,1219 $11,1219 $11,1219 $11,1219 11,1219 $11,1219 $11,1219 $11,121.9 $11,121.9 S$11,1219 $11,121.9 $11,121.9 10,492$10,341 $10,191 $10,044 $9,898 $9,755 $9,614 $9,475 $9,338 $9,203$9,070 $8,939 $8,810 $8,682 $8,557 $8,433 -Payment" Discount Factor 150,842-1st period Payment NPViQuarterly Discount rate range of payment values 29 Principle Outstanding $150,842 S153,056 S155,302 157,581 $148,771 $139,832 $130,762 $121,559 $112,221 S102,74 S93,131 $83,376 $73,478 $63,434 S53,243 $42,902 $32,410 $21,764 S10,961 30 Interest Payments 31 Princimple Payments SO $2,312 $2,183 2,052 $1,919 $1,784 $1,647 1,508 1,367 1,223 S1,078 $931 781 S630S476 319 $161 S0 $8,810 8,939 $9,070 9,203 9,338 $9,475 $9,614,755 9898 $10,044 $10,191 S10,341 $10,492 $10,646 $10,803 $10,961 $0

1 There not much material differnee b Payments at stan Annual disoountI Equivalent Quart Year 1, Start of Q Y1-03 Y2-02 Y2-03 Y2-04 Y3-01 Y1-G2 101+G34) Y3-02 KS1+G 4) Y1-04 0 Y3-03 Discount factor -111+1.5% rz Py of Payments NPV Formula Amortization Sohedule C12C9 UMIC13 V13) sum of allPys of pa NPVIIG4 012 V1-1 period Payment 012 09 GT2 GS 12J9 L12L9 M12 M9 14 PV of paymnets- 18 Principle Outstanding 20 Princimple Payments 22 Method 2 018-E20 -F18-G20 -18-120 L18-M20 Interest Payments C 18, $G$4 -012-019 F12-FT G12-G19 H12-H19 J12-J19 -L12-L19 M12-IM13 111219 G23 G9 11121.9 111219 11121.9 M23 M9 23 Payments m21.9 H23 H PV of Payments PV of paymnets- NPV Formula Paymonk Disc SUMIE24 V24)sum of all Pv's of ps 281 Amo·tization Schedule Prinoiple Outstanding Interest Payments -|C29-D31)-C29"SG-ID29-E3D+D29, $G·IE29-F31-E29"tG :F29-G31 -F29 1C34 G23-G30 -G29-H31 -G29 $634 -K29-L31 -K29·134 23-M31 L29 1G34 -M23-M30 -H29 1034 29 1034 294084 -K23-K30 E23-E30 F23-F30