Rumsfeld Corporation leased a machine on December 31, 2016, for a 3-year period.
ID: 2491766 • Letter: R
Question
Rumsfeld Corporation leased a machine on December 31, 2016, for a 3-year period. The lease agreement calls for annual payments in the amount of $16,500 on December 31 of each year beginning on December 31, 2016. Rumsfeld has the option to purchase the machine on December 31, 2019, for $20,500 when its fair value is expected to be $30,500. The machine's estimated useful life is expected to be four years with no residual value. Rumsfeld uses straight-line depreciation for this type of machinery. The appropriate interest rate for this lease is 8%.
Calculate the amount to be recorded as a leased asset and the associated lease liability.
dec 31,2016, dec 31, 2017, dec 31, 2018, dec 31 2019
Rumsfeld Corporation leased a machine on December 31, 2016, for a 3-year period. The lease agreement calls for annual payments in the amount of $16,500 on December 31 of each year beginning on December 31, 2016. Rumsfeld has the option to purchase the machine on December 31, 2019, for $20,500 when its fair value is expected to be $30,500. The machine's estimated useful life is expected to be four years with no residual value. Rumsfeld uses straight-line depreciation for this type of machinery. The appropriate interest rate for this lease is 8%.
n/i PV of $1 PV, ordinary annuity PV, annuity due 1 period, 8% 0.92593 0.92593 1.00000 2 periods, 8% 0.85734 1.78326 1.92593 3 periods, 8% 0.79383 2.57710 2.78326 Required: 1.
Calculate the amount to be recorded as a leased asset and the associated lease liability.
dec 31,2016, dec 31, 2017, dec 31, 2018, dec 31 2019
Explanation / Answer
Answer:1
PV of $1, n=3, i=8% = .79383
PV of an annuity due of $1, n=3, i=8% = 2.78326
PV of payments $16,500 x 2.78326 =$45,924
PV of BPO $20,500 x.79383 =16,274
=$62,198
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