Quitzau\' The lease payment is $1,650 per month first due at the commencement of
ID: 2511458 • Letter: Q
Question
Quitzau' The lease payment is $1,650 per month first due at the commencement of the lease. s Bus Corp. (QBC) leased a bus from a local leasing company. The five-year lease commenced on January 1, 2018, and QBC has a December 31 year-end The fair value of the bus is $105,000 The estimated useful life of the bus is nine years. QBC is responsible for all maintenance on the vans OBC residual value guarantee, although at the conclusion of the lease the bus is estimated to be worth $30,000. QBC has the option to buy the bus for the estimated residual value of $30,000 at the end of the lease term. does not provide a The lessor's required rate of return for transactions of this nature is 0 5827% per month and this is known to QBC. What is the amount that will be credited to the lease libility account on January 1,2018Explanation / Answer
Monthly Lease payment at the beginning of each month = $1,650
Total no. of months in lease period = 5 years*12 months in a year = 60 months
Required rate of return per month = 0.5827%
Lease liabilty on January 1, 2018 will be equal to sum of present value of monthly lease payments and present value of residual value at the end of lease period.
Present Value of Monthly lease payments = First lease payment+[Monthly Lease Payments*PVAF(0.5827%, 59)]
= $1,650+($1,650*49.80547) = $1,650+$82,179 = $83,829
Present Value of residual Value = Residual Value*PVF(0.5827%, 60)
= $30,000*0.70567 = $21,170
Lease Liability = PV of Lease payments+PV of Residual Value
= $83,829+$21,170 = $104,999
After first lease payment, the lease liability on January 1, 2018 = $104,999 - $1,650 = $103,349
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