Question
On 12/31/x0, Chicago Packing Co. entered into a 3-year capital lease of equipment with annual payments at the end of each year. The lease schedule
On 12/31/x0, Chicago Packing Co. entered into a 3-year capital lease of equipment with annual payments at the end of each year. The lease schedule is provided below. Answer the following six questions.
| Year | PV at Beginning of Year | Interest | Amortization of Principal | Value at End of Year |
|
|
|
|
| $86,971 |
| 1 | $86,971 | $ 15,655 | $ 24,345 | $62,626 |
| 2 | $62,626 | $ 11,273 | $ 28,727 | $33,898 |
| 3 | $33,898 | $ 6,102 | $ 33,898 | $0 |
1) The implied interest rate on this lease is?
2)Interest payable on the balance sheet at the end of year 1 is?
3) In total, the cost of leasing this equipment to Chicago Packing Co. was _________?
4) Prior to this transaction, Chicagos assets were $1,000,000 and liabilities were $500,000. What is the debt ratio immediately after Chicago leased the equipment?
5) How much are leased assets on the balance sheet at the end of year 2?
6) Net Income decreased by what amount in year 2 due to this lease transaction?
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