Windsor Leasing Company signs an agreement on January 1, 2020, to lease equipment to Cole Company. The following information relates to this agreement.
1.  The term of the noncancelable lease is 6 years with no renewal option. The equipment has an estimated economic life of 6 years.  
2.  The cost of the asset to the lessor is $451,000. The fair value of the asset at January 1, 2020, is $451,000.  
3.  The asset will revert to the lessor at the end of the lease term, at which time the asset is expected to have a residual value of $24,225, none of which is guaranteed.  
4.  The agreement requires equal annual rental payments, beginning on January 1, 2020.  
5. 
Collectibility of the lease payments by Windsor is probable. Assuming the lessor desires a 6% rate of return on its
investment, calculate the amount of the annual rental payment
required. (For calculation purposes, use 5 decimal
places as displayed in the factor table provided and the final
answer to 0 decimal places e.g. 5,275.)

Answer  
Residual value 
$ 24,225  
PV of single sum (i=6%, n=6)  0.70496054  1/1.06^6 
PV of residual value  $ 17,078  
Fair market value of leased equipment  $ 451,000  
Present value of residual value  $ 17,078  
Amount to be recovered through lease payment  $ 433,922  
PV factor of annuity due  5.212363  
Annual payment required  $ 83,249  433922/5.212363 
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