Answered

Welcome to Westonci.ca, where your questions are met with accurate answers from a community of experts and enthusiasts. Discover in-depth solutions to your questions from a wide range of experts on our user-friendly Q&A platform. Explore comprehensive solutions to your questions from knowledgeable professionals across various fields on our platform.

On January 1, James Industries leased equipment to a customer for a four-year period, at which time possession of the leased asset will revert back to James. The equipment cost James $700,000 and has an expected useful life of six years. Its normal sales price is $700,000. The residual value after four years is $100,000. Lease payments are due on December 31 of each year, beginning with the first payment at the end of the first year. The interest rate is 5%. Calculate the amount of the annual lease payments.

Sagot :

Tundexi

Answer:

$174,207.19

Explanation:

Amount to be recovered (Fair value) = $700,000.....A

PV of residual value = $100,000 * PVIF of $1(5%, 4) = $100,000 * 0.82270 = $82,270.........B

Amount to be recovered through periodic lease payments = A - B = $700,000 - $82,270 = $617,730

Annual lease payment = Amount to be recovered through periodic lease payments / PV of ordinary annuity of $1(5%, 4)

Annual lease payment = $617,730 / 3.54595

Annual lease payment = $174207.194123

Annual lease payment = $174,207.19

So,  the amount of the annual lease payments is $174,207.19.

We hope this was helpful. Please come back whenever you need more information or answers to your queries. We hope this was helpful. Please come back whenever you need more information or answers to your queries. Discover more at Westonci.ca. Return for the latest expert answers and updates on various topics.