Question 39

On September 1, 2020, Crane Corporation, which uses ASPE, signed a 7-year, non-cancellable lease for a piece of equipment. The terms of the lease called for Crane to make annual payments of $14,080 at the beginning of each lease year, starting September 1, 2020. The equipment has an estimated useful life of 9 years and a $12,000 unguaranteed residual value and a fair value on September 1, 2020, of $100,000. The equipment reverts back to the lessor at the end of the lease term. Crane uses the straight-line method of depreciation for all of its plant assets, has a calendar year end, prepares adjusting journal entries at the end of the fiscal year, and does not use reversing entries. Crane's incremental borrowing rate is 12%, and the lessor's implicit rate is unknown.

Click here to view the factor table PRESENT VALUE OF 1.

Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

(a)

Calculate the PV of the future minimum lease payments using any of the following methods: (1) factor tables, (2) a financial calculator, or (3) Excel functions.(Round factor value to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 5,275.)

Present value of the minimum lease payments