A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269...

3.9 Ratings (431 Votes)

Answer A
Determination of present value of the lease upon lease inception
Year	Lease Payment	Discount Factor @ 5%	Present Values		PV Factors based on
0	$26,269	1.00000	$26,269		Table or calculator function
1	$26,269	0.95238	$25,018		Lease Payment	$26,269
2	$26,269	0.90703	$23,827		n=	6
3	$26,269	0.86384	$22,692		i=	5%
4	$26,269	0.82270	$21,612		PV of Lease	$140,000
5	$26,269	0.78353	$20,582
NPV			$140,000

Present Value of Lease =			$140,000

Answer B
Partial Amortization through the payment on January 1,2017
Date	Lease Payment	Effective Interest	Decrease in balance	Outstanding balance
01-01-16				$140,000
01-01-16	$26,269	$0	$26,269	$113,731
01-01-17	$26,269	5687 [$113731*5%]	$20,582	$93,149

Answer C
Impact on pretax income related to the lease:
Income Statement debit side
Interest Expense		$5,687
Total Expenses		$5,687

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