A lease agreement that qualifies as a finance lease calls forannual lease payments of $25,000 over a six-year lease term (alsothe asset’s useful life), with the first payment at January 1,2016, the beginning of the lease. Lease payments will occur onJanuary 1 each year thereafter. The interest rate is 5%.
a. Determine the present value of the leaseupon the lease's inception.
b. Create a partial amortization through thesecond payment on January 1, 2017.
c. If the lessee’s fiscal year is the calendaryear, what would be the pretax amounts related to the lease thatthe lessee would report in its income statement for the first yearended December 31?
