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Leases

This topic has 1 reply, 2 voices, and was last updated 7 years ago by MikeLittle.

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May 6, 2017 at 12:58 pm #385084
alicechaw
Member
- Topics: 4
- Replies: 4
Sir, please tell me how you derive the answer for this question, I am stuck for hours trying to understand..
Lessee pays 5 payments of $120,000 annually in ADVANCE under year lease.
At end of 5 years, ownership will transfer to lessee for a nominal amount.
Incremental borrowing rate of lessee is 10.50%.
Interest rate implicit in lease is 10.05%.
Fair value machine is $500,000
What are the finance charge & capital repayment using the ACTUARIAL Method?
May 6, 2017 at 5:53 pm #385126
MikeLittle
Keymaster
- Topics: 27
- Replies: 23200
The actuarial method is the method that uses the rate implicit in the leaseStart top line with 500,000
Then (120,000)
380,000
38,190 (380,000 x 10.05%)
418,190
(120,000)
298,190
29,968 (298,190 X 10.05%)
328,158
(120,000)
208,158
… and so on
OK?
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