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Hi Chris,
BPP workbook question.
Company enter 4 yr lease agreement commencing 1/1/20×1 . terms of 4 payment of $50k commence 1/1/20x1and annually thereafter. The interest rate impliciti is 7.5% and PV LP not paid at 1/1/20×1 (ie: 3 payments of $50K) discounted at tht rate is $130026.
How do i know if this is lease is in arrears or advance?
The solution they did was
b/f – payment + interest = c/f….so this is in advance right?
and so they put the 1st yr payment as 0.Because i usually do
bf + int – payment = c/fHow do i not mistake to take 4 payments instead of 3 payments. IF the 3 payment line is not mentioned then am i right to take 4 payment or do
bf + int – payment = cf?Hi,
Hope you’re well.
The lease starts on 1/1 20X1 and the first payment is on the same date, so the payments are therefore in advance, i.e. at the start of the lease period.
There are still for payments even though the lease payment are in advance but there will be no interest in the final year of the lease as the final payment at the start of the fourth year of the lease will pay off the outstanding liability.
Thanks
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