Question
A lease agreement that qualifies as a finance lease calls for annual lease payments of $10,000 over a five-year lease term (also the assets useful
A lease agreement that qualifies as a finance lease calls for annual lease payments of $10,000 over a five-year lease term (also the assets useful life), with the first payment at January 1, 2016, the beginning of the lease. The interest rate is 4%. The lessors fiscal year is the calendar year. The lessor manufactured this asset at a cost of $30,000. (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.) Required: a. Determine the price at which the lessor is selling the asset (present value of the lease payments). b. Create a partial amortization schedule through the second payment on January 1, 2017. c. What would be the increase in earnings that the lessor would report in its income statement for the first year ended December 31 (ignore taxes)?
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