Sheldon Cooper Inc., an equipment dealer, leased a machine to Duffy Co. on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2022. Sheldon Cooper Inc. had purchased the machine during 2021 for $150,000. Collectibility of lease payments by Sheldon Cooper Inc. is probable. Sheldon Cooper Inc. set the annual rental to ensure a 4% rate of return. The machine has an economic life of 10 years with no residual value and reverts to Sheldon Cooper Inc. at the termination of the lease. Assume that Duffy Co. does not know the rate implicit in the lease used by Sheldon Cooper Inc., and Duffy’s incremental borrowing rate is 6%. In addition, assume that Duffy incurs initial direct costs of $11,000. Compute the amount of the lease liability for Duffy. Present value of an annuity due of 1 for 8 periods at 6% is 6.58238. Present value of an ordinary annuity of 1 for 8 periods at 6% is 6.20979. Future value of an ordinary annuity of 1 for 8 periods at 6% is 9.89747. Question 2 options: a) $289,996 b) $181,947. c) $192,864. d) $203,864.
Sheldon Cooper Inc., an equipment dealer, leased a machine to Duffy Co. on January 1, 2022. The lease is for an 8-year period and requires equal annual payments of $29,300 at the beginning of each year. The first payment is received on January 1, 2022. Sheldon Cooper Inc. had purchased the machine during 2021 for $150,000. Collectibility of lease payments by Sheldon Cooper Inc. is probable. Sheldon Cooper Inc. set the annual rental to ensure a 4%
Compute the amount of the lease liability for Duffy.
Present value of an annuity due of 1 for 8 periods at 6% is 6.58238.
Present value of an ordinary annuity of 1 for 8 periods at 6% is 6.20979.
Future value of an ordinary annuity of 1 for 8 periods at 6% is 9.89747.
Question 2 options:
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