Schedule of Lease Payments Stagg Construction Co. is leasing equipment from Clou
ID: 2537476 • Letter: S
Question
Schedule of Lease Payments Stagg Construction Co. is leasing equipment from Cloud Inc. The lease calls for payments of $50,000 a year plus $3,000 a year executory costs for five years. The first payment is due on January 1, 2013, when the lease is signed, with the other four payments coming due on December 31 of each year. Stagg has also been given the option of purchasing the equipment at the end of the lease at a bargain price of $95,000. Stagg has an incremental borrowing rate of 9%, the same as the implicit interest rate of Cloud.
Stagg has hired you as an accountant and asks you to prepare a schedule showing how the lease payments will be split between principal and interest and the outstanding lease liability balance over the life of the lease. Round to the nearest dollar. Correct for the accumulated rounding error by adjusting the final lease payment interest amount. Stagg Construction Co. Schedule of Lease Payments (5-year lease with bargain purchase option) Lease Payme Lease Paymen Lease Paymen Executory Costs Lease Pay Principal Obligat 1/01/13 Initial Balance 1/01/13 Payment 12/31/13 Payment 12/31/14 Payment 12/31/15 Payment 12/31/16 Payment 12/31/17 PaymentExplanation / Answer
Answer:
Stagg Construction Co.
Schedule of Lease Payments
(5-year lease with bargain purchase option)
Lease Payment
Executory
Lease
Date
Description
Amount
Principal
Interest
Costs
Obligation
1/1/2013
Initial Balance
273726
1/1/2013
Payment
53000
50000
$
3000
223726
12/31/2013
Payment
53000
29865
20135
3000
193861
12/31/2014
Payment
53000
32553
17447
3000
161308
12/31/2015
Payment
53000
35482
14518
3000
125826
12/31/2016
Payment
53000
38676
11324
3000
87150
12/31/2017
Payment
95000
87150
7,850
360000
273726
63424
15000
Working notes for the above answer:
1
Present value of lease payments
PVn = $50,000 + $50,000(PVAF4 year ,9%)
PVn = $50,000 + $50,000(3.2397)
PVn = $211,985
Present value of bargain purchase option
PV = $95,000(PVF 5th year,9%)
PV = $95,000(0.6499)
PV = $61,741
Total lease obligation:
$211,985 + $61,741
= $273,726
Stagg Construction Co.
Schedule of Lease Payments
(5-year lease with bargain purchase option)
Lease Payment
Executory
Lease
Date
Description
Amount
Principal
Interest
Costs
Obligation
1/1/2013
Initial Balance
273726
1/1/2013
Payment
53000
50000
$
3000
223726
12/31/2013
Payment
53000
29865
20135
3000
193861
12/31/2014
Payment
53000
32553
17447
3000
161308
12/31/2015
Payment
53000
35482
14518
3000
125826
12/31/2016
Payment
53000
38676
11324
3000
87150
12/31/2017
Payment
95000
87150
7,850
360000
273726
63424
15000
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