Answered

Discover a world of knowledge at Westonci.ca, where experts and enthusiasts come together to answer your questions. Join our platform to connect with experts ready to provide detailed answers to your questions in various areas. Connect with a community of professionals ready to help you find accurate solutions to your questions quickly and efficiently.

On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The residual value after four years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. Calculate the amount of the annual lease payments.

Sagot :

Tundexi

Answer:

$174,207.19

Explanation:

Amount to be recovered (Fair value) = $700,000.....A

PV of residual value = $100,000 * PVIF of $1(5%, 4) = $100,000 * 0.82270 = $82,270.........B

Amount to be recovered through periodic lease payments = A - B = $700,000 - $82,270 = $617,730

Annual lease payment = Amount to be recovered through periodic lease payments / PV of ordinary annuity of $1(5%, 4)

Annual lease payment = $617,730 / 3.54595

Annual lease payment = $174207.194123

Annual lease payment = $174,207.19

So,  the amount of the annual lease payments is $174,207.19.

We appreciate your visit. Hopefully, the answers you found were beneficial. Don't hesitate to come back for more information. We hope our answers were useful. Return anytime for more information and answers to any other questions you have. Keep exploring Westonci.ca for more insightful answers to your questions. We're here to help.