CHAPTER 15, 5 On January 1, Garcia Supply leased a truck for a five-year period,

Question

CHAPTER 15, 5

On January 1, Garcia Supply leased a truck for a five-year period, at which time possession of the truck will revert back to the lessor. Annual lease payments are $14,500 due on December 31 of each year, calculated by the lessor using a 6% discount rate. Negotatons led to Garcia guaranteeing a $67,600 residual value at the end of the lease term. Garcia estimates that the residual value after four years will be $65,700. (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.) What is the amount to be added to the right-of-use asset and lease liability under the residual value guarantee? O Answer is complete but not entirely correct. Amount to be added $ 1,419

Explanation / Answer

Thus 110174.14$ should be added

Year Cash flow PVIF @ 6% Present value 1 14500 0.94340 13679.25 2 14500 0.89000 12904.95 3 14500 0.83962 12174.48 4 14500 0.79209 11485.36 5 80200 0.74726 59930.11 110174.14

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