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g100num [7]
3 years ago
9

Refer to the following lease amortization schedule. The five payments are made annually starting with the beginning of the lease

. A $2,000 purchase option is reasonably certain to be exercised at the end of the five-year lease. The asset has an expected economic life of eight years.
LeasePayment Cash Payment Effective Interest Decrease in Balance Outstanding Balance
- 34,600
1 8,000 ?? ?? 26,600
2 8,000 2,660 5,340 21,260
3 8,000 2,126 5,874 15,386
4 8,000 1,539 6,461 8,925
5 8,000 ?? ?? ??
6 2,000 182 1,818 0
a. What is the outstanding balance after payment 5?
Business
1 answer:
babymother [125]3 years ago
5 0

Answer and Explanation:

Lease   Cash    Effective           Decrease in               Outstanding

Payment   Payment   Interest           Balance                   Balance

                                                                                                       $ 34,600

1                $ 8,000     $ 3,460*       $ 4,540**                        $ 26,600

2          $ 8,000     $ 2,660        $ 5,340                       $ 21,260

3          $ 8,000     $ 2,126        $ 5,874                       $ 15,386

4         $ 8,000    $ 1,539                $ 6,461                       $ 8,925

5          $ 8,000    $   893                $ 7,108                        $ 1,818***

6        $ 2,000    $   182              $ 1,818                             $    -  

*34600 x 10%

**8000-4540

***8000-7108

Interest rate = interest on second lease payment/outstanding balance after 1st payment x 100

Interest rate = 2660/26600 x 100

Interest rate = 10%

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