On January 1, 2010, Kerr Company leased a machine to Wee Company for six years requiring payments of P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Kerr’s implicit interest rate is 10% and present value factors are as follows: Present value of an annuity due of 1 at 10% for 6 periods-4.791 Present value of an annuity due of 1 at 10% for 8 periods-5.868 Kerr appropriately recorded the lease as a direct financing lease. At the inception of the lease, the gross lease receivable account balance should be a. 600,000 b. 586,800 c. 480,000 d. 479,100
On January 1, 2010, Kerr Company leased a machine to Wee Company for six years requiring payments of P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Kerr’s implicit interest rate is 10% and present value factors are as follows: Present value of an annuity due of 1 at 10% for 6 periods-4.791 Present value of an annuity due of 1 at 10% for 8 periods-5.868 Kerr appropriately recorded the lease as a direct financing lease. At the inception of the lease, the gross lease receivable account balance should be a. 600,000 b. 586,800 c. 480,000 d. 479,100
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2010, Kerr Company leased a machine to Wee Company for six years requiring payments of P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Kerr’s implicit interest rate is 10% and present value factors are as follows:
Present value of an annuity due of 1 at 10% for 6 periods-4.791
Present value of an annuity due of 1 at 10% for 8 periods-5.868
Kerr appropriately recorded the lease as a direct financing lease.
At the inception of the lease, the gross lease receivable account balance should be
Present value of an annuity due of 1 at 10% for 6 periods-4.791
Present value of an annuity due of 1 at 10% for 8 periods-5.868
Kerr appropriately recorded the lease as a direct financing lease.
At the inception of the lease, the gross lease receivable account balance should be
a. 600,000
b. 586,800
c. 480,000
d. 479,100
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