Question

Smart Industries leases equipment on January 1, 2016. The finance lease has an 11-year term, and an implicit rate of 5%. The equipment has a list price of $300,000 and the lease agreement requires a $20,000 down payment when the lease is signed plus 10 annual payments of $36,261.28 on December 31 of each year of the lease. After Smart Industries makes its payment on December 31, 2018, what is its remaining lease obligation (carrying value) for the equipment

Answer 1

Answer:

$234,364.37

Explanation:

Lease obligation = Present value of remaining Lease payment

Present Value Of An Annuity = C*[1-(1+i)^-n]/i]

Present Value of Annuity = $36261.28 * [1-(1+0.05)^-8 /0.05]  

Present Value of Annuity = $36261.28 * [1-(1.05)^-8 /0.05]    

Present Value of Annuity = $36261.28 * [(0.3232)] /0.05

Present Value of Annuity = $234,364.37

Hence, its remaining lease obligation (carrying value) for the equipment is $234,364.37