Brief Exercise 15-13 Purchase option lessor sales-type lease [LO15-2, 15-3, 15-6]

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 $750,000 under an arrangement that specified annual payments beginning at the commencement of the lease for eight 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 $310,000. (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.) Calculate the amount of the annual lease payments.

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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 $750,000 under an arrangement that specified annual payments beginning at the commencement of the lease for eight 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 $310.000. (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.) Calculate the amount of the annual lease payments. Table or calculator function AD of $1 6% Present Value Amount to be recovered (fair value) Purchase option 750,000 883,011 133,011 Amount to be recovered through periodic lease payments$ Lease Payment Table or calculator function AD of $1 6% Lease Payments Amount of fair value recovered each lease payment 140,921