A lease agreement that qualifies as a finance lease calls forannual lease payments of $26,269 over a six-year lease term (alsothe asset’s useful life), with the first payment at January 1,2016, the beginning of the lease. The interest rate is 5%. Thelessor’s fiscal year is the calendar year. The lessor manufacturedthis asset at a cost of $125,000. (FV of $1, PV of $1, FVA of $1,PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s)from the tables provided.) Required:
a. Determine the price at which the lessor is “selling” theasset (present value of the lease payments).
| PV factors based on | | Table or Calculator function: | | | Lease Payment | | | n = | | | i = | | | PV of Lease | |
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b. Create a partial amortization schedule through the secondpayment on January 1, 2017
Date Cash Interest Received Effective Interest Decrease inBalance Outstanding Balance
01/01/2016
01/01/2016
01/01/2017
. c. What would be the amounts related to the lease that thelessor would report in its income statement for the year endedDecember 31, 2017 (ignore taxes)?
| Pretax impact on income related to thelease: | | | | | | | | Total pretax impact onincome | |
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