Present value calculation — capital lease Renter Co. acquired the use of a machine by agreeing to pay the manufacturer of the machine $900 per year for 10 years. At the time the lease was signed, the interest rate for a 10-year loan was 12%.
Required:
a. Use the appropriate factor from Table 6-5 to calculate the amount that Renter Co. could have paid at the beginning of the lease to buy the machine outright.
b. What causes the difference between the amount you calculated in part a and the total of $9,000 ($900 per year for 10 years) that Renter Co. will pay under the terms of the lease?
c. What is the appropriate amount of cost to be reported in Renter Co.’s balance sheet (at the time the lease was signed) with respect to this asset?
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