Multiple Choice Question 70

Wildhorse, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $434152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Wildhorse, Inc.s incremental borrowing rate is 9% and the rate implicit in the lease (which is known by Wildhorse, Inc.) is 7%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?

	PV Annuity Due	PV Ordinary Annuity
7%, 4 periods	3.62432	3.38721
9%, 4 periods	3.53129	3.23972

$331212

$293616

$354397

$434152