Acct 557 Week 4

In: Business and Management

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Problem 1: Kingdom Leasing Inc. agrees to lease jousting equipment to Knight Inc. on Jan 1, 2012. They agree on the following terms: | | | 1) The normal selling price of the jousting equipment is $325000 and the cost of the asset to Kingdom Leasing Inc. was $250000. | 2) Knight will pay all maintenance, insurance and taxes costs directly and annual payments of $60000 on Jan 1 each year. | 3) The lease begins on Jan 1, 2012 and payments will be in equal annual installments. | 4) The lease is noncancelable with no renewal option. The lease term is 10 years (the same as the estimated economic life). | 5) At the end of the lease, the jousting ring will revert to Kingdom Leasing Inc. and have an unguaranteed residual value of $30000. Their implicit interest rate is 10%. | 6) Kingdom Leasing, Inc. Incurred costs of $6500 in negotiating and closing the lease. There are no uncertainties regarding additional costs yet to be incurred and the collectability of the lease payments is reasonably predictable. | | Required: | a) Determine what type of lease this would be for the lessor and calculate the following: (show all work)The lease term exceeds 75% of the asset's estimated economic life. In addition, Kingdom Leasing realized a profit. Also, the collection of payments is reasonably assured and there are no further costs to be incurred. As a result, this lease is a sales-type lease. Lease Receivable:Annual Lease Payment $60,000 Present Value Of Annuity Due for 10 periods discounted at 10% 6.75903 Present Value Of 10 Lease Payments [60,000 x 6.75903) $405,542 Estimated Residual Value $30,000 Present Value Factor for 10 periods at 10% 0.38554 Present Value Of Estimated Residual Value [30,000 x 0.38554] $11,566 Total Lease Receivable: [405,542 + 11,566] $417,108 Sales Price: Present Value Of 10 Lease…...

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