A lease agreement that qualifies as a finance lease calls for annual lease payments of $20,000...

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Accounting

A lease agreement that qualifies as a finance lease calls forannual lease payments of $20,000 over a eight-year lease term (alsothe asset’s useful life), with the first payment at January 1,2016, the beginning of the lease. The interest rate is 4%. Thelessor’s fiscal year is the calendar year. The lessor manufacturedthis asset at a cost of $128,000. (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 price atwhich the lessor is “selling” the asset (present value of the leasepayments). b. Create a partial amortization schedule through thesecond payment on January 1, 2017. c. What would be the amountsrelated to the lease that the lessor would report in its incomestatement for the year ended December 31, 2017 (ignore taxes)?

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a Determination of the price at which the lessor is selling the asset present value of the lease payments Present Value of 8 annual lease payments 20000 20000 PVAD 4 7 20000 20000 60021 20000 120042 140042 Present value of the lease payments 140042 b Creation of a partial amortization through the second payment on January See Answer

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