You are a staff accountant at a higher education institution,Philly College of Business (“the College” or PCB). The lease on thecurrent multifunction copiers the College uses is almost up. Thecollege has decided to replace the current copiers with CanonimageRunner AdvanceC55501 copiers. The following is the informationyou have been able to gather so far related to renting the copiers.The IT department was able to negotiate the following lease termsto rent the 15 copiers needed.

• The lease is non-cancelable

• 5-year lease term (estimated economic life is also5-years)

• The local Canon dealer is responsible for all repairs andmaintenance on the copiers during the lease term.

• The base rent per copier is $146.93/month. There is anadditional charge of $0.0068 per page copied or printed permonth.

• The IT department estimates that the College will average10,000 to 20,000 copies per month per copier.

• The current fair market value of the copiers is $9,190 percopier.

• The copiers will be returned to the local Canon dealer whenthe lease term is over.

• The unguaranteed residual value is estimated to be $900 at theend of the lease.

Question

The CFO has asked you to prepare an analysis includingsupporting calculations on the impact to the balance sheet andincome statement in each of the next 6 years of a second optionrelated to the copiers - leasing the imageRunnerAdvanceC55501copiers. In addition, the CFO would like you tocompare the two options (purchase copiers with cash on hand andlease copiers). Your analysis for the CFO should be in the form ofa 1-2 page memo plus supporting tables. Assume the lease term onthe copiers begins October 31, 2018. At a minimum your supportingtables should include the following. You may also want to includesome or all of your tables from part 1 of the project.

a. Lease amortization table (if you determine this would be afinance lease)

b. A schedule of the journal entries for each of the next 6years, 2018 – 2023 related to the lease

c. A table summarizing the balance sheet and income statementimpact in each of the six years (for both options)

d. A table calculating and comparing the present value of thenet cash flows for each of the options: purchase with cash on handand lease the copiers.

Assume the incremental borrowing rate is6.1%