On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021. The...
On January 1, 2021, a company signs a 25-year lease for land. Annual payments of $20,000 begin on December 31, 2021. The company’s normal borrowing rate is 6%. For what amount would the company record the lease on January 1, 2021 (rounded to nearest whole dollar)? Use (PV of $1, and PVA of $1) (Use appropriate factor(s) from the tables provided. Do not round interest rate factors.)
Multiple Choice
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$255,667.
-
$440,463.
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$500,000.
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$244,333.
Homework Answers
Company should record the lease at present value of minimum lease payment which are calculated as below.
= Annual Lease payment * PVAIF (25 years,6%)
= 20000 * 12.7833
=255667.1
=255667
Therefore first option is correct.
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