Question

On January 1, Garcia Supply leased a truck for a five-year period, at which time possession of the truck will revert back to the lessor Annual lease payments are $14,500 due on December 31 of each year, calculated by the lessor using a 6% discount rate Negotiations led to Garcia guaranteeing a $67,600 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $65.700. (FV of S1. PV of $1. FVA of $1. PVA of $1. EVAD 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? Amount to be added

Answer 1

	6.00%
Year	Cash Flow	PV fatctor	Present Values
0	-	1.000	-
1	14,500	0.943	13,679.25
2	14,500	0.890	12,904.95
3	14,500	0.840	12,174.48
4	14,500	0.792	11,485.36
5	14,500	0.747	10,835.24
5	67,600	0.747	50,514.65
	Total of Present Values		111,593.93
So Leasee should recognize the right to use of the leased asset at 111,594.93