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On January 1, Ramirez Supply leased a car for a four-year period, at which time possession of the car will revert back to the lessor.

On January 1, Ramirez Supply leased a car for a four-year period, at which time possession of the car will revert back to the lessor. Annual lease payments are $20,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Ramirez guaranteeing the lessor a $72,000 residual value at the end of the lease term although Ramirez estimates that the residual value after four years will be $70,000. What is the amount to be added to the right-of-use asset and lease payable under the residual value guarantee?

The present value of $1: n=4, i=5% is 0.82270.
The present value of an ordinary annuity of $1: n=4, i=5% is 3.54595.
The present value of an annuity due of $1: n=4, i=5% is 3.72325.

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