Quattro Corporation signed a lease from Cinco Leasing Company of July 1, 20X3, for equipment having a five-year useful life. The lease does not include any option to purchase the equipment at the end of the four-year lease term, nor does it include a provision for ownership transfer. Five equal payments of $10,000 per year are required by the term of the lease, with the first payment due upon signing. Quattro's incremental borrowing rate is 8%, but its implicit interest rate is unknown.
Present value of an annuity at 8% for 5 years = 3.993
Present value of an annuity at 8% for 4 years = 3.312
On its December 31, 20X3 financial statements, Quatto would display the following amounts in the indicated accounts:
Since the life of the lease is 4/5=80% of the useful life, it is a capital lease.
The value of the equipment would be the present value of the lease payments. The lease payments are an ...
The following posting helps with finance problems. Concepts covered include equipment amount, accumulated depreciation and lease payable.