Problem 21A-1 a-c The following facts pertain to a non-cancelable lease agreemen

Question

Problem 21A-1 a-c

The following facts pertain to a non-cancelable lease agreement between Faldo Leasing Company and Ivanhoe Company, a lessee.

The asset will revert to the lessor at the end of the lease term. The lessee uses the straight-line amortization for all leased equipment.

Find the present value of lease payments.

Commencement date January 1, 2017 Annual lease payment due at the beginning of
   each year, beginning with January 1, 2017 $96,097 Residual value of equipment at end of lease term,
   guaranteed by the lessee $52,000 Expected residual value of equipment at end of lease term $47,000 Lease term 6 years Economic life of leased equipment 6 years Fair value of asset at January 1, 2017 $565,000 Lessor’s implicit rate 4 % Lessee’s incremental borrowing rate 4 %

Explanation / Answer

116916.69

Total $7,59,002.40. $672679.00

Present value of leased payments Period Annual lease payment due at the beginning of the year Present value 0 96097 96097 1 99940.88 96097 2 103938.52 96097 3 108096.05 96097 4 112419.90 96097 5

116916.69

96097 6 121593.36 96097

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