A lease agreement that qualifies as a finance lease calls for annual lease payme

Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $60,000 over a five-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
a. Determine the present value of the lease upon the lease's inception.
b. Create a partial amortization through the first payment on January 1, 2017.
c. If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31?

Required. Determine the present value of the lease upon the lease's inception. (Round your answers to nearest whole number and round percentage answer to 1 decimal place.)

Create a partial amortization through the first payment on January 1, 2017. (Enter all amounts as positive values. Round your answers to nearest whole number.)

If the lessee’s fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31? (Round your answers to nearest whole number.)

Explanation / Answer

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1. Annual Lease payment PV Lease Payment 60000 n= 5 year i=5% PV=4.545951 PV of Lease Payment 272757 60000*4.545951 PV Working 0 1 1 0.952381 2 0.907029 3 0.863838 4 0.822702 5 4.545951

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