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Sheridan Cosmetics, Inc. has entered into a leasing agreement to rent equipment from Sheffield Leasing...

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Accounting

Sheridan Cosmetics, Inc. has entered into a leasing agreement to rent equipment from Sheffield Leasing Services. There is no transfer of title, there is not a bargain purchase option, and the economic life test is not met. Based on the following information, what would be used in the 90% test for the present value of the lease payments for the lessee?

Annual payments (1st day of the period) $51700

Lease termination 5 years

Guaranteed Residual Value $12600

Incremental Borrowing Rate (lessor implicit rate is not known) 8%

PV Annuity Due

PV ordinary annuity

PV Single Sum

6%, 5 periods

4.46511

4.21236

0.74726

8%, 5 periods

4.31213

3.99271

0.68058

10%, 5 periods

4.16986

3.79079

0.62092

$231512

$271100

$258500

$222937

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