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Ajax Inc. has entered into an operating lease that calls for 5 equal payments of $15,000...

Ajax Inc. has entered into an operating lease that calls for 5 equal payments of $15,000 each year, payable at the beginning of the year. The implicit interest rate of the lease is 3.5 percent per year. The present value of the lease is $70,096.19. If the interest portion of the third $15,000 payment is $1,470.86, what would be the principal portion of that payment and the asset amortization amounts for the second year?

Question 1 options:

Principal: $13,529.14; Asset Amortization: $14,019.24

Principal: $14,019.24; Asset Amortization: $14,019.24

Principal: $13,529.14; Asset Amortization: $13,529.14

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Answer #1

Answer :

the principal portion of that payment $13,071.63 and the asset amortization amounts for the second year $14,019.24.

Asset Amortization = 70096.19/5 = 14019.24

Principal payments:

Year Bal Due at Beg of Year Paid at beg of Year Interest @ 3.5% Principal payment Bal at end of year
1 70096.19 15000 0 15000 55096.19
2 55096.19 15000 1928.37 13071.63 42024.56
3 42024.56 15000 1470.86 13529.14 28495.42
4 28495.42 15000 997.34 14002.66 14492.76
5 14492.76 15000 507.25 14492.75 0.00
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