Question

Glade Company leases computer equipment to customers under direct financing leases. The equipment has no residual...

Glade Company leases computer equipment to customers under direct financing leases. The equipment has no residual value at the end of the lease term, and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.)

Required:

Compute the total amount of interest revenue that Glade will earn over the life of the lease. (Round your intermediate and final answers to 2 decimal places.)

Gross lease payments receivable?

Total interest revenue?

Business   Accounting   
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Homework Answers

Answer #1

Solution:

Annual lease payments = Fair value of equipment / Cumulative PV factor at 8% for 5 periods

= $323,400 / 3.99271 = $80,997.62

Gross lease payment receivables in 5 years = $80,997.62*5 = $404,988.10

Total interest revenue Galde will earn over the life of the lease = $404,988.10 - $323,400 =$81,588.10

Note: The answer may differ slightly because non availability of factor table in the questions. we have done calculation considering PV factor to be rounded off to 5 decimal places.

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