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Corporate Accounting 11. On 1 July 2019, Homes Company leased a vehicle from Den Company. The...

Corporate Accounting

11. On 1 July 2019, Homes Company leased a vehicle from Den Company. The vehicle cost Den $39,654.60 considered to be its fair value on that same day. The finance lease agreement contained the following provisions:

  • The lease term is 3 years, starting on 1 July 2019.
  • Estimated useful life the Vehicle is 5 years.
  • Annual lease Payment, payable on 30 June each year is $12,000
  • Estimated Residual Value of the vehicle at the end of the lease is $10,000.
  • Residual Value Guaranteed by Company Homes is 6,000.
  • Interest rate implicit in the lease is 7%.
  • Present value of an annuity: PVIFA (T3, 7%, 3Y) = 2.6243
  • Present value of $1: PVIF (T1, 7%, 3Y) = 0.8163

The PV of the lease payment by company Homes (lessee) at 1 July 2019 will be:

Select one:

a. $33,589.40

b. $36,389.40

c. $39,654.40

d. $37,389.40

Business   Accounting   
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Homework Answers

Answer #1

Answer ) C - $ 36389.40

Workings

Year Event CF PVF@7% Present value
1 to 3 Lease annual payment $        12,000 2.6243 $      31,491.60
3 Guranteed Residual Value $          6,000 0.8163 $        4,897.80
$      36,389.40

Note : Guranteed Residual Value estimated will not be taken only Residual Value guranteed by company will taken for lease liability for lessee.

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