Car Co. is negotiating to lease a piece of equipment to MT plc. MT plc requests that the lease be for 9 years. The equipment has a useful life of 10 years. Car Co. wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MT plc agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000, what would be the amount of the annual rental payments Car Co. demands of MT plc, assuming each payment will be made at the beginning of each year and Car Co. wishes to earn a rate of return on the lease of 8%?
Car Co. is negotiating to lease a piece of equipment to MT plc. MT plc requests that the lease be for 9 years. The equipment has a useful life of 10 years. Car Co. wants a guarantee that the residual value of the equipment at the end of the lease is at least £5,000. MT plc agrees to guarantee a residual value of this amount though it expects the residual value of the equipment to be only £2,500 at the end of the lease term. If the fair value of the equipment at lease commencement is £70,000, what would be the amount of the annual rental payments Car Co. demands of MT plc, assuming each payment will be made at the beginning of each year and Car Co. wishes to earn a rate of return on the lease of 8%?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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