Check my work 5 Brief Exercise 15-17 Non-lease payments [LO15-2,15-7] On January
ID: 2403367 • Letter: C
Question
Check my work 5 Brief Exercise 15-17 Non-lease payments [LO15-2,15-7] On January 1, 2018, Jasperse Corporation leased equipment under a finance lease designed to earn the lessor a 10% rate of return for providing long-term financing. The lease agreement specified ten annual payments of $115,000 beginning January 1, and each December 31 thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance of the equipment as required for a fee of $4,000 per year. Insurance premiums of $3,000 annually are related to the equipment. Both amounts were to be 2.57 points eBookpaid by the lessor and lease payments reflect both expenditures. (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.) Print References At what amount will Jasperse record a right-of-use asset? n PV factors based on Table or Calculator function: Lease Payment Right-of-use assetExplanation / Answer
Solution:
Annual lease payments at beginnig of lease = $115,000
Maintenance and insurance premium to be paid by lessor = $4,000 + $3,000 = $7,000
Effective annual lease payment solely for use of assets = $115,000 - $7,000 = $108,000
Rate of return to lessor (i) = 10%
Period of lease (n) = 10 years
Lease Payment = $108,000
Right of use assets = Annual lease payment * cumulative PV Factor of immediate annuity for 10 period at 10%
= $108,000 * 6.759025 = $729,975