Answered

At Westonci.ca, we connect you with experts who provide detailed answers to your most pressing questions. Start exploring now! Join our Q&A platform and connect with professionals ready to provide precise answers to your questions in various areas. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform.

Blossom Leasing Company leases a new machine to Sharrer Corporation. The machine has a cost of $65,000 and fair value of $90,500. Under the 3-year, non-cancelable contract, Sharrer will receive title to the machine at the end of the lease. The machine has a 3-year useful life and no residual value. The lease was signed on January 1, 2020. Blossom expects to earn an 8% return on its investment, and this implicit rate is known by Sharrer. The annual rentals are payable on each December 31, beginning December 31, 2020.

Required:
Prepare an amortization schedule that would be suitable for both the lessor and the lessee and that covers all the years involved

Sagot :

Answer:

Note: See the attached excel file for the amortization schedule.

Explanation:

In the attached excel file,since the annual rentals are payable on each December 31, the annual Receipt/Payment is calculated using the formula for calculating the present value of an ordinary annuity as follows:

PV = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)

Where;

PV = Present value or fair value of the machine = $90,500

P = Annual Receipt/Payment = ?

r = Expected return rate = 8%, or 0.08

n = number of years = 3

Substitute the values into equation (1) and solve for P, we have:

$90,500 = P * ((1 - (1 / (1 + 0.08))^3) / 0.08)

$90,500 = P * 2.57709698724788

P = $90,500 / 2.57709698724788

P = $35,177.03

View image amcool
We hope this information was helpful. Feel free to return anytime for more answers to your questions and concerns. Thank you for your visit. We're dedicated to helping you find the information you need, whenever you need it. Your questions are important to us at Westonci.ca. Visit again for expert answers and reliable information.