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A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000...

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Accounting

A lease agreement that qualifies as a finance lease calls forannual lease payments of $50,000 over a four-year lease term (alsothe asset’s useful life), with the first payment at January 1, thebeginning of the lease. The interest rate is 7%. (FV of $1, PV of$1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Useappropriate factor(s) from the tables provided.) Required: c. Ifthe lessee’s fiscal year is the calendar year, what would be thepretax amounts related to the lease that the lessee would report inits income statement for the first year ended December 31?

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Year 7% Lease Payment PV Of Lease payment Date Payment Interest Lease lowered by Lease Receivable
0 1.0000 50000 50000 181216
1 0.9346 50000 46729 Jan-01 50000 0 50000 131216
2 0.8734 50000 43672 Dec-31 50000 9185 40815 90401
3 0.8163 50000 40815
Net Present Value 181216

c.

Interest Expense $                        9,185
Depreciation Expense $                      45,304
Pretax earnings reduced by $                      54,489
Note: Depreciation Expense (181216/4)

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