Shapiro Inc. was incorporated in 2024 to operate as a computer software service firm, with an accounting fiscal year ending August 31. Shapiro’s primary product is a sophisticated online inventory-control system; its customers pay a fixed fee plus a usage charge for using the system.

Shapiro has leased a large, Alpha-3 computer system from the manufacturer. The lease calls for a monthly rental of $40,000 for the 144 months (12 years) of the lease term. The estimated useful life of the computer is 15 years.

All rentals are payable on the first day of the month beginning with August 1, 2025, the date the computer was installed and the lease agreement was signed. The lease is non-cancelable for its 12-year term, and it is secured only by the manufacturer’s chattel lien on the Alpha-3 system. This lease is to be accounted for as a finance lease by Shapiro, and it will be amortized by the straight-line method. Borrowed funds for this type of transaction would cost Shapiro 6% per year (0.5% per month). Following is a schedule of the present value of an annuity due for selected periods discounted at 0.5% per period when payments are made at the beginning of each period.

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Periods (months) 1 2 3 143 144 Present Value of an Annuity Due Discounted at 0.5% per Period 1.000 1.995 2.985 102.497 102.987