Calculate the annual lease payments required

Assignment Help Financial Management

Reference no: EM131969547

The following facts pertain to a non-cancelable lease agreement between Hernandez Leasing Company and Sangsanoy Company, a lessee.

Inception date: 1-May-2018

First payment due date: 1-May-2018

Bargain-purchase option price at end of lease term $5,000.00

Lease term 5 years

Economic life of leased equipment 10 years

Lessor’s cost $63,900.00

Fair value of asset at May 1, 2018 $78,900.00

Lessor’s implicit rate (unknown by the Lessee) 8%

Lessee’s incremental borrowing rate 11%

The collectability of the lease payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by the lessor. The lessee assumes responsibility for all executory costs.

Present value of 1 for 5 periods at 8% 0.68058

Present value of 1 for 5 periods at 11% 0.59345

Present value of annuity for 5 periods at 8% 3.99271

Present value of annuity for 5 periods at 11% 3.69590

Present value of annuity due for 5 periods at 8% 4.31213

Present value of annuity due for 5 periods at 11% 4.10245

Part 1: Calculate the annual lease payments required by Hernandez Leasing Co, given their implicit rate of return.

Part 2: What are the journal entries for the first two years (through Dec. 31, 2019) for both the lessor and lessee?

Reference no: EM131969547

Questions Cloud

Discuss the rights of the parties : Elise endorses a negotiable instrument she received for painting work she hasn't yet performed "to the order of Karen." Karen takes the instrument for value.

What would be the most appropriate retirement plan : Ellen Satter, age 59, wants to establish a retirement plan for her business tht will allow her to retire in 6 years. She expects to earn $200,000 and estimates.

Categories of weapons falling : Of the three categories of weapons falling under the rubric of WMD, which has the most effective control regime and why?

What is your total percentage return on investment : Eight months ago, you purchased 400 shares of Winston, Inc. stock at a price of $54.90 a share. The company pays quarterly dividends of $.50 a share.

Calculate the annual lease payments required : Calculate the annual lease payments required by Hernandez Leasing Co, given their implicit rate of return.

Embassies and consuls and consulates : What are the differences in immunity for ambassadors and their embassies and consuls and their consulates? Explain the rationale and implications.

What does motivation mean : What does motivation mean? List the theories of motivation and explain each one, then choose your preferred one and explain why you chose it.

Explain how long it will take to quadruple investment : Explain how long it will take to quadruple an investment made at 8% per year.

Find the required rate of return for the un-levered firm : EIEIO Agriculture Inc. is a sole proprietorship company that is located in New Bedford Nova Scotia that is owned by your best friend and they have come to you.

User Account

All Pages