Question

Glade Company leases computer equipment to customers under direct financing leases. The equipment has no residual value at the end of the lease term, and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400. Use tables (PV of 1, PVAD of 1, and PVOA of 1) (Use the appropriate factor(s) from the tables provided.) Required:
Compute the total amount of interest revenue that Glade will earn over the life of the lease. (Round your intermediate and final answers to 2 decimal places.)

Answer 1

Answer:

$51,588.70

Explanation:

The computation of the total amount of interest revenue is shown below:-

Annual lease payments = Fair value of Equipment ÷ PV factor of $1 annuity due

= $323,400 ÷ (1 + (1 - (1.08)^-4) ÷ 0.08)

= $323,400 ÷ 4.31213

= $74,997.74

Now,

Total interest revenue = Gross lease payments receivable - Fair value

= $74,997.74 × 5 - $323,400

= $374,988.70 - $323,400

= $51,588.70