Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-year lease term (also the asset's useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 5% (FV of $1. PV of $1. EVA of St. PYA OLS1,EVAD of $1 and PVAD of S1) (Use appropriate factor(s) from the tables provided.) Required: a. Determine the present value of the lease upon the lease's inception b. Create a partial amortization through the first payment on January 1, 2017 c. If the lessee's fiscal year is the calendar year, what would be the pretax amounts related to the lease that the lessee would report in its income statement for the first year ended December 31? Complete this question by entering your answers in the tabs below. Required A Required B Required Determine the present value of the lease upon the lease's inception. (Round your answers to nearest whole number and round percentage answer to 1 decimal place.) Py factors based on Table or Calculator function Lease Payment PV of Lease Required B >

Answer 1

Solution a:

PV Factor based on
Table or Calculator function	PVAD of $1
Lease Payment	$26,269
n=	6
i=	5.00%
PV factor	5.32948
PV of lease	$140,000

Solution b:

Date	Lease payments	Effective interest	Decrease in balance	Lease balance
1-Jan-16				$140,000
1-Jan-16	$26,269	$0	$26,269	$113,731
1-Jan-17	$26,269	$5,687	$20,582	$93,149

Solution c:

Impact on pretax income related to lease
Interest expense	$5,687
Depreciation expense ($140,000/6)	$23,333
Total expenses	$29,020