Ace Leasing acquires equipment and leases it to customers under
long-term sales-type leases. Ace earns interest under these
arrangements at a 6% annual rate. Ace leased a machine it purchased
for $620,000 under an arrangement that specified annual payments
beginning at the commencement of the lease for five years. The
lessee had the option to purchase the machine at the end of the
lease term for $150,000 when it was expected to have a residual
value of $180,000. (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.) Or Use Intermediate Accounting
table if not provided.
Calculate the amount of the annual lease payments. (Round
your answers to the nearest whole number.)
Purchase Option |
|
Table or calculator function: |
|
n= |
|
i= |
|
Present Value |
|
Amount to be recovered (fair value) |
|
Purchase option |
|
Amount to be recovered through periodic lease payment |
|
Lease payment |
|
Table or calculator function: |
|
n= |
|
i= |
|
Lease payments |
|
Amount of fair value recovered each lease payment |
Solution:
Purchase Option | |
Table or calculator function: | PV of $1 |
n= | 5 |
i= | 6% |
Present Value | |
Amount to be recovered (fair value) | $620,000 |
Purchase option | $112,089 |
Amount to be recovered through periodic lease payment | $507,911 |
Lease payment | |
Table or calculator function: | PVAD of $1 |
n= | 5 |
i= | 6% |
Lease payments | |
Amount of fair value recovered each lease payment | $113,751 |
Ace Leasing acquires equipment and leases it to customers under long-term sales-type leases. Ace earns interest...
Ace Leasing acquires equipment and leases it to customers under
long-term sales-type leases. Ace earns interest under these
arrangements at a 6% annual rate. Ace leased a machine it purchased
for $690,000 under an arrangement that specified annual payments
beginning at the commencement of the lease for five years. The
lessee had the option to purchase the machine at the end of the
lease term for $200,000 when it was expected to have a residual
value of $250,000. (FV of...
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