Question

On January 1, year 1, Homeland Entity (HE) signed a 20-year lease contract for an office...

On January 1, year 1, Homeland Entity (HE) signed a 20-year lease contract for an office building. The lease contract calls for HE to make payments of $10,000 at the beginning of each year, with the first payment being made January 1, year 1. This lease qualifies as a financing lease. HE decides to use the present value technique to estimate the fair value of the leased office building. The appropriate interest rate to reflect the time value of money is 8%. What is the fair value of the leased building?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Year Annual Lease Payments PVIF@8% Present Value of Lease Payments
1 10000 1 10000.00
2 10000 0.92592593 9259.26
3 10000 0.85733882 8573.39
4 10000 0.79383224 7938.32
5 10000 0.73502985 7350.30
6 10000 0.6805832 6805.83
7 10000 0.63016963 6301.70
8 10000 0.5834904 5834.90
9 10000 0.54026888 5402.69
10 10000 0.50024897 5002.49
11 10000 0.46319349 4631.93
12 10000 0.42888286 4288.83
13 10000 0.39711376 3971.14
14 10000 0.36769792 3676.98
15 10000 0.34046104 3404.61
16 10000 0.3152417 3152.42
17 10000 0.29189047 2918.90
18 10000 0.27026895 2702.69
19 10000 0.25024903 2502.49
20 10000 0.23171206 2317.12
Total 200000 106035.99
The fair value of Leased Building is 106035.99
0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
On January 1 of year 1, Falk Company signed a contract to lease space in a...
On January 1 of year 1, Falk Company signed a contract to lease space in a building for 3 years. The lease contract calls for annual (prepaid) rental payments of $100,000 on each January 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. Present value of the three lease payments is $270,000. Assume the lease is accounted for as an operating lease. Prepare entries for Falk to...
On July 1, 2004, Harper Company signed a contract to lease space in a building for...
On July 1, 2004, Harper Company signed a contract to lease space in a building for 15 years. The lease contract calls for annual (prepaid) rental payments of $80,000 on each July 1 throughout the life of the lease and for the lessee to pay for all additions and improvements to the leased property. On June 25, 2009, Harper decides to sublease the space to Bosio & Associates for the remaining 10 years of the lease—Bosio pays $260,000 to Harper...
Operating lease; scheduled rent increases On January 1, 2016, Sweetwater Furniture Company leased office space under...
Operating lease; scheduled rent increases On January 1, 2016, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement. The contract calls for annual rent payments on December 31 of each year. The payments are $10,000 the first year and increase by $500 per year. Benefits expected from using the office space are expected to remain constant over the lease term. Required: Record Sweetwater’s rent payment at December 31, 2020 (the fifth rent payment) and December 31, 2030...
On January 1, 2021, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement....
On January 1, 2021, Sweetwater Furniture Company leased office space under a 21-year operating lease agreement. The contract calls for annual lease payments on December 31 of each year. The payments are $14,500 the first year and increase by $300 per year. Benefits expected from using the office space are expected to remain constant over the lease term. Required: Record Sweetwater's lease payment at December 31, 2025 (the fifth lease payment), and December 31, 2035 (the fifteenth lease payment). (If...
Jefferson Inc. just signed a contract to lease office space for 9 years. The appropriate discount...
Jefferson Inc. just signed a contract to lease office space for 9 years. The appropriate discount rate is 6% per year. Show Your work. A)If the annual lease payment is fixed at $3 million and the first payment is made one year from today, what is the current value of these lease payments? B)If the annual lease payment starts at $2 million one year from today and grows every year after by 10% per year, what is the current value...
Financial Statement Impact of a Lease GEORGE's Warehouse signed a six-year capital lease on January 1,...
Financial Statement Impact of a Lease GEORGE's Warehouse signed a six-year capital lease on January 1, 2016, with payments due every December 31. Interest is calculated annually at 10%, and the present value of the minimum lease payments is $11,455. Use the appropriate present value table: PV of $1 and PV of Annuity of $1 Required: 1. Calculate the amount of the annual payment that GEORGE's must make every December 31. Round your answer to the nearest whole dollar. Lease...
On January 1, 2017, the Millwork Company signed a four-year non-cancelable lease of equipment from the...
On January 1, 2017, the Millwork Company signed a four-year non-cancelable lease of equipment from the Midford Company. The annual lease payments of $35,000 are to be paid on January 1 of each year. The first payment is due on January 1, 2017. The lease contains a bargain purchase option price of $15,000. The equipment's fair value is expected to be $30,000 on December 31, 2020. The estimated economic life of the equipment is six years, and the estimated residual...
On 1 July 20x2, Large Mart signs a seven (7) year lease contract for a photocopier...
On 1 July 20x2, Large Mart signs a seven (7) year lease contract for a photocopier for its office. At the end of the lease period Large Mart will have the option to purchase the photocopier for $500 (but the expected fair value of the photocopier at the end of the lease term is $1,000). Large Mart is able to cancel the lease contract after paying 85% of the outstanding lease payments as a fine. Large Mart expects that the...
On January 1, 2020 a sign lease on a piece of equipment. Annual payments of $16,554.85...
On January 1, 2020 a sign lease on a piece of equipment. Annual payments of $16,554.85 will be made at the beginning of each year starting on 1/1/20. The fair value of the leased asset is $60,000. The term of the lease is 4 years. Its economic life is 4 years with no residual value. The lessor set payments to earn 7% rate of return. Our incremental borrowing rate is 7%. This is a financing lease. Required: Prepare the amortization...
At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under...
At the beginning of its fiscal year, Lakeside Inc. leased office space to LTT Corporation under a ten-year operating lease agreement. The contract calls for quarterly rent payments of $27,000 each. The office building was acquired by Lakeside at a cost of $2.2 million and was expected to have a useful life of 25 years with no residual value. What will be the effect of the lease on LTT’s earnings for the first year (ignore taxes)? LT = _______ Its...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT