Question

Starboard Industries enters into a lease agreement with Bumble Motors to lease an automobile with a...

Starboard Industries enters into a lease agreement with Bumble Motors to lease an automobile with a fair value of $71,000 under a 5−year lease on December 20, 2018. The lease commences on January 1, 2019, and Starboard will return the automobile to Bumble on December 31, 2023. The automobile has an estimated useful life of 7 years. Starboard made a lease payment of $10,600 on December 20, 2018. In addition, the lease agreement stipulates annual payments of $10,600, due on January 1 of 2019, 2020, 2021, 2022, and 2023. The implicit rate of the lease is 8% and is known by Starboard. Starboard guarantees a residual value of 4,500 and incurs initial direct costs of $1,200. How do you find the discounting factor for each year???

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1
Year Rental R Discount factor 4% D Calculation Present value
Dec 20 2018 10600 1 10600
Jan 1 2019 10600 0.92593 1/1.08 9815
Jan 1 2020 10600 0.85734 .92593/1.08 9088
Jan 1 2021 10600 0.79383 .85734/1.08 8415
Jan 1 2022 10600 0.73503 .79383/1.08 7791
Jan 1 2023 10600 0.68058 .73503/1.08 7214
Total 52923
For Dec 20 2018 discount factor is taken as 1 as the payment in made at inception of lease
I hope this will clear your doubt.
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
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for...
. Eubank Company, as the lessee, enters into a lease agreement on January 1, 2020, for equipment. The following data are relevant to the lease agreement: 1.   The term of the noncancelable lease is 4 years. Payments of $978,446 are due on January 1 of each year. 2.   The fair value of the equipment on January 1, 2020 is $3,6000,000. The equipment has an economic life of 6 years with no salvage value. 3.   Eubank depreciates similar machinery it owns...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease...
On January 1, 2017, Marlene Corp. enters into an agreement with Dietrich Rentals Inc. to lease a machine from them. Both corporations adhere to ASPE. The following data relate to the agreement: 1. The term of the non-cancellable lease is three years with no renewal option. Payments of $271,622 are due on December 31 of each year. 2. The fair value of the machine on January 1, 2017, is $700,000. The machine has a remaining economic life of 10 years,...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January...
Please answer all a,b,c! Eubank Company, as lessee, enters into a capitalized lease agreement on January 1, 2018, for equipment. The following data are relevant to the lease agreement: The term of the non-cancelable lease is 4 years with no renewal option. Payments of $782,757 are made at the beginning of each year. The present value of the minimum lease payments equals $2,800,000. The fair value of the equipment on 1/1/18 is $2,800,000. The equipment has an economic life of...
Beta Company leased equipment from Summer Industries. The lease agreement qualifies as a finance lease and...
Beta Company leased equipment from Summer Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $50,000 over an eight-year lease term (also the asset’s useful life), with the first payment at January 1, 2019, the beginning of the lease. The interest rate is 6%. The asset being leased cost Summer $300,000 to produce. Costs of $5,866 for legal fees for the lease execution were the responsibility of the lessor. The total increase (decrease) in...
Beta Company leased equipment from Summer Industries. The lease agreement qualifies as a finance lease and...
Beta Company leased equipment from Summer Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $50,000 over an eight-year lease term (also the asset’s useful life), with the first payment at January 1, 2019, the beginning of the lease. The interest rate is 6%. The asset being leased cost Summer $300,000 to produce. Costs of $5,866 for legal fees for the lease execution were the responsibility of the lessor. The total increase (decrease) in...
Lessee Company enters into a lease on January 1, 2021, that is accounted for as a...
Lessee Company enters into a lease on January 1, 2021, that is accounted for as a finance lease. The lease calls for quarterly payments of $20,000, beginning on January 1, 2021, and continuing for 5 years. The last payment is due on October 1, 2025. The lease has an implicit annual interest rate of 9%. The present value of an annuity due at 9% per period for 5 periods is 4.240; the present value of an annuity due at 2.25%...
Elliott Company leased a delivery truck with a fair value of $85,000 and an estimated useful...
Elliott Company leased a delivery truck with a fair value of $85,000 and an estimated useful life of 8 years from Larson Motors signing a five-year lease on December 30, 2017. The lease begins on January 1, 2018, and Elliott will return the truck to Larson at the conclusion of the lease on Dec 31, 2022. Elliott made an initial lease payment of $12,000 on January 1 of 2018, with the remaining lease payments of the same amount due on...
Using Australian Accounting System - Latrobe University Harry Ltd enters into a non-cancellable five-year lease agreement...
Using Australian Accounting System - Latrobe University Harry Ltd enters into a non-cancellable five-year lease agreement with Porter Ltd on 1 July 2018. The lease is for an item of machinery that, at the inception of the lease, has a fair value of $647,192. The machinery is expected to have an economic life of six years, after which time it will have an expected residual value of $105,000. There is a bargain purchase option that Harry Ltd will be able...
On December 31, 2017, ABC enters into a debt restructuring agreement with GG Bank. The bank...
On December 31, 2017, ABC enters into a debt restructuring agreement with GG Bank. The bank agrees to restructure a 6.75% (issued at par) $30,000,000 bond by making the following modifications: 1. reducing the principal obligation from $30,000,000 to $24,000,000. 2. extending the maturity date from December 31, 2017, to January 1, 2027. 3. reducing the interest rate from 6.75% to 6.00%. ABC’s market interest rate is currently 15% due to its risk profile, i.e. declining revenue and earnings. Market...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment...
Rhone-Metro Industries manufactures equipment that is sold or leased. On December 31, 2018, Rhone-Metro leased equipment to Western Soya Co. for a four-year period ending December 31, 2022, at which time possession of the leased asset will revert back to Rhone-Metro. The equipment cost $580,000 to manufacture and has an expected useful life of six years. Its normal sales price is $618,738. The expected residual value of $26,000 at December 31, 2022, is not guaranteed. Equal payments under the lease...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT