FIN+MAN ACCOUNTING (LL) W/ ACCESS CODE
9th Edition
ISBN: 9781265884871
Author: Wild
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Question
Chapter 10, Problem 23E
To determine
Concept Introduction:
Lease: A lease is an agreement between the lessor (0wner) and the lessee (tenant) for the right to use the asset by the lessee for a period of time and rent. Leases are classified as finance lease and operating leases, in either case, the lease is recorded at the present value of lease payments.
The present value of lease options to identify the best option.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solutionStudents have asked these similar questions
9. Automobile leases are built around three factors: negotiated sales price, residual value,
and interest rate. The residual value is what the dealership expects the car's value will be
when the vehicle is returned at the end of the lease period. The monthly cost of the lease
is the capital recovery amount determined by using these three factors. Determine the
monthly lease payment for a car that has an agreed-upon sales price of $34,995, an APR
of 9% compounded monthly, and an estimated residual value of $20,000 at the end of a
36-month lease. An up-front payment of $3,000 is due when the lease agreement
(contract) is signed.
Automobile leases are built around three factors: negotiated sales price, residual value, and interest rate. The residual value is what the dealership expects the car’s value will be when the vehicle is returned at the end of the lease period. The monthly cost of the lease is the capital recovery amount determined by using these three factors. Solve, (a) Determine the monthly lease payment for a car that has an agreed-upon sales price of $34,995, an APR of 9% compounded monthly, and an estimated residual value of $20,000 at the end of a 36-month lease.∗ An up-front paymentof $3,000 is due when the lease agreement (contract) is signed. (b) If the estimated residual value is raised to $25,000 by the dealership to get yourbusiness, how much will the monthly payment be?
One of the departments at Yolo Industries has entered into a 9 year lease for a piece of equipment. The annual payment
under the lease will be $3,600, with payments being made at the beginning of each year. If the discount rate is 10%, the
present value of the lease payments is closest to (Ignore income taxes.):
Click here to view Exhibit 14B-1 and Exhibit 148-2, to determine the appropriate discount factor(s) using the tables
provided. (Round your intermediate calculations to 3 decimal places.)
Multiple Choice
$22,806
$10,07Y
$22,105
$32,400
Chapter 10 Solutions
FIN+MAN ACCOUNTING (LL) W/ ACCESS CODE
Ch. 10 - Prob. 1QSCh. 10 - Prob. 2QSCh. 10 - Prob. 3QSCh. 10 - Prob. 4QSCh. 10 - Prob. 5QSCh. 10 - Prob. 6QSCh. 10 - Prob. 7QSCh. 10 - Prob. 8QSCh. 10 - Prob. 9QSCh. 10 - Prob. 10QS
Ch. 10 - Prob. 11QSCh. 10 - Prob. 12QSCh. 10 - Prob. 13QSCh. 10 - Prob. 14QSCh. 10 - Prob. 15QSCh. 10 - Prob. 16QSCh. 10 - Prob. 17QSCh. 10 - Prob. 18QSCh. 10 - Prob. 19QSCh. 10 - Prob. 20QSCh. 10 - Prob. 21QSCh. 10 - Prob. 22QSCh. 10 - Prob. 23QSCh. 10 - Prob. 24QSCh. 10 - Prob. 1ECh. 10 - Prob. 2ECh. 10 - Prob. 3ECh. 10 - Prob. 4ECh. 10 - Prob. 5ECh. 10 - Prob. 6ECh. 10 - Prob. 7ECh. 10 - Prob. 8ECh. 10 - Prob. 9ECh. 10 - Prob. 10ECh. 10 - Prob. 11ECh. 10 - Prob. 12ECh. 10 - Prob. 13ECh. 10 - Prob. 15ECh. 10 - Prob. 16ECh. 10 - Prob. 17ECh. 10 - Prob. 18ECh. 10 - Prob. 19ECh. 10 - Prob. 20ECh. 10 - Prob. 21ECh. 10 - Prob. 22ECh. 10 - Prob. 23ECh. 10 - Prob. 1PSACh. 10 - Prob. 2PSACh. 10 - Prob. 3PSACh. 10 - Prob. 4PSACh. 10 - Prob. 5PSACh. 10 - Prob. 6PSACh. 10 - Prob. 7PSACh. 10 - Prob. 8PSACh. 10 - Prob. 9PSACh. 10 - Prob. 10PSACh. 10 - Prob. 11PSACh. 10 - Prob. 12PSACh. 10 - Prob. 13PSACh. 10 - Prob. 1PSBCh. 10 - Prob. 2PSBCh. 10 - Prob. 3PSBCh. 10 - Prob. 4PSBCh. 10 - Prob. 5PSBCh. 10 - Prob. 6PSBCh. 10 - Prob. 7PSBCh. 10 - Prob. 8PSBCh. 10 - Prob. 9PSBCh. 10 - Prob. 10PSBCh. 10 - Problem 10-10BB Effective Interest: Amortization...Ch. 10 - Prob. 12PSBCh. 10 - Prob. 13PSBCh. 10 - Prob. 10SPCh. 10 - Prob. 1.1AACh. 10 - Prob. 1.2AACh. 10 - Prob. 1.3AACh. 10 - Prob. 2.1AACh. 10 - Prob. 2.2AACh. 10 - Prob. 2.3AACh. 10 - Prob. 3.1AACh. 10 - Prob. 3.2AACh. 10 - Prob. 3.3AACh. 10 - Prob. 1DQCh. 10 - Prob. 2DQCh. 10 - Prob. 3DQCh. 10 - Prob. 4DQCh. 10 - Prob. 5DQCh. 10 - Prob. 6DQCh. 10 - Prob. 7DQCh. 10 - Prob. 8DQCh. 10 - Prob. 9DQCh. 10 - What is the issue price of a $2,000 bond sold at...Ch. 10 - Prob. 11DQCh. 10 - Prob. 12DQCh. 10 - Prob. 13DQCh. 10 - Prob. 14DQCh. 10 - Prob. 15DQCh. 10 - Prob. 1BTNCh. 10 - Prob. 2BTNCh. 10 - Prob. 3BTNCh. 10 - Prob. 4BTN
Knowledge Booster
Similar questions
- Lease versus Buy Consider the data in Problem 19-1. Assume that RCs tax rate is 40% and that the equipments depreciation would be 100 per year. If the company leased the asset on a 2-year lease, the payment would be 110 at the beginning of each year. If RC borrowed and bought, the bank would charge 10% interest on the loan. In either case, the equipment is worth nothing after 2 years and will be discarded. Should RC lease or buy the equipment?arrow_forwardUse the information in RE20-6. However, assume that there is no bargain purchase option and that Montevallo guarantees the 20,000 estimated residual value at the end of the 10-year lease. Montevallo estimates that it is probable that it will have to pay 15,000 cash due to the residual value guarantee. Calculate the present value of the lease payments. Round your answer to the nearest dollar.arrow_forwardHow do I calculate this on a TI-84 calculator? Air Atlantic (AA) has been offered a 3-year old jet airliner under a 12-year lease arrangement. The lease requires AA to make annual lease payments of $500,000 at the beginning of each of the next 12 years. Determine the present value of the lease payments if the opportunity cost of funds is 14arrow_forward
- Hi, Please help to determine present value of lease payments (lessee) considering the following: Project 2.2 Topic: Leases Part 2 Illini leases another piece of equipment from Cubs Corporation under a four-year lease agreement on 1/1/20x1. The lease specifies annual payments on each 1/1 and the first payment of $10,000 is made on 1/1/20x1. The lease also specifies a 3% annual increase in the lease payments. The equipment has a fair value of $100,000 on 1/1/20x1. The expected useful life of the equipment is 10 years with no residual value. The equipment will be returned to Cubs at the end of the lease term. The implicit rate is 10%. Project 2.2 Part 2 Ledger Date Account Name Debit Credit 1/1/20x1 ROU assets [A] Lease obligation [B]arrow_forwardFinancial Statement Reporting for a Finance Lease Reynolds Construction (RC) needs a piece of equipment that costs $165,000. The equipment has an economic life of 3 years and no residual value. The equipment will not require maintenance because its useful life is so short. RC can borrow the full cost of the equipment at an interest rate of 10% with payments due at the end of the year. Alternatively, RC can lease the equipment for $60,000 with payments due at the end of the year. Assume RC chooses the lease, which is a finance lease for financial reporting purposes. Answer the following questions. (Hint: See Table 19-1.) a. What is the initial lease liability that must be reported on the balance sheet? Do not round intermediate calculations. Round your answer to the nearest cent. Enter your answer as a positive value. $ b. What is the initial right-of-use asset? Do not round intermediate calculations. Round your answer to the nearest cent. $ c. What will RC report as an interest expense…arrow_forwardBelardo Manufacturing is considering a lease to acquire new equipment. The useful life of the asset is 10 years. Belardo can lease the equipment from Weber City Bank for $5,000 per year over an 9-year period. The lease does not contain a purchase option. There is no transfer of ownership clause in the contract. Should Belardo account for this lease as an operating or a finance lease? Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table Begin by identifying any of the Group I criteria that Belardo meets. (Select all that apply. If there is insufficient information to determine if a specific criteria is met, do not check the box for that criteria.) 1. The lease transfers ownership to the lessee at the end of the lease term. 2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise. 3.…arrow_forward
- Please use Excel Broncos Company leased equipment from Wilson-Tech Leasing on January 1, 2022.Other information:Lease term 3 yearsAnnual payments $40,000 on January 1 each yearLife of asset 3 yearsImplicit interest rate 8%There is no expected residual value.Required: 1. Using the Excel (not formula or PV tables), compute the amount of Right-of-Use Asset as thepresent value of future lease payments. Explain how you compute this PV. 2. Prepare appropriate journal entries for Broncos for 2022. Assume straight-line amortizationand a December 31 year-end. Round your answers to the nearest whole dollar amounts. January 1, 2022: December 31, 2022:arrow_forwardHonda is selling a 2014 Accord Coupe Ex M for $30 056.90 including freight, PDI and all applicable fees. The lease payment of $382 is due at the beginning of each month. If the interest rate compounded annually is 3.99% and the residual value is $13 200, determine the size of the final lease payment. Question 1 options: A) $285.95 B) $240.51 C) $214.13 D) $150.28 E) $5.92arrow_forwardAn operating lease has unequal payments over the lease term. During the first year, the payment is $14,000; total payments over the five-year lease term are $120,000. Based on the present value of the total lease payments and the implicit interest rate, interest expense incurred during the first year is $6,000. Amortization of the right-to-use asset for year 1 should be: Multiple Choice $0 $8,000 $20,000 $24,000arrow_forward
- Lease ValuationA building owner is evaluating the following alternatives for leasing space in an office building forthe next five years. Expenses are estimated to be $9 psf for the first year and forecast to increase at$1 psf per year thereafter.Net lease with steps. Rent is $15 psf for the first year and will increase $1.50 per square foot foreach year until the end of the lease. All operating expenses are paid (reimbursed) by the tenant.Net lease with CPI adjustments. Rent is $16 psf for the first year. After year 1, the rent will beincreased by any increase in the CPI which is expected to be 3% per year. Again, all the expenses arereimbursed by the tenant.Gross lease. Rent will be $28 psf each year with the lessor responsible for paying all of the operatingexpenses.Gross lease with an expense stop and CPI adjustment. Rent will be $24 psf the first year and increaseby the full amount of the CPI (3%) after the first year with an expense stop for the landlord at $9 psf.The CPI and…arrow_forwardCalculating Lessor Payment-Guaranteed Residual Value Quest Inc. is negotiating an agreement to lease equipment to a lessee for 8 years. The equipment has a useful life of 10 years. The fair value of the equipment is $28,000 and the lessor expects a rate of return of 8% on the lease contract. The lessee guarantees a residual value of $7,000 at the end of the 8-year lease term. If the first annual payment is required at the end of the first year following the commencement of the lease, what fixed lease payment should Quest Inc. charge in order to earn its expected rate of return on the contract? • Note: Enter the answer in dollars and cents, rounded to the nearest penny. • Note: Do not use a negative sign with your answer. Lease payment $ 4,379.94 *arrow_forwardUse LCM Method (unequal lives). Problem : Two Location Alternatives, A and B where one can lease one of two locations: Location A Location B $ 15,000 $ 3,500 $ 18,000 $ 3,100 Present Cost (PC) Annual Lease Cost (AL) Deposit Return (DR) $ 1,000 $ 2,000 Lease term (n) 6 years 9 years Interest rate (i) 15 % 15 % Which option is more preferable? Use n = 18 years (LCM)arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Intermediate Financial Management (MindTap Course...
Finance
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Cengage Learning