Question

King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $10,000 due at the end of each month. King Cones elected the short-term lease option.What is the effect of the lease on King Cones’ earnings during the eight-month term (ignore taxes)?

Answer 1

Answer: $80,000

Explanation:

Given that,

Annual interest rate = 6%

Lease term = Eight month

Monthly payment at the end of each month = $10,000

King cones earning reduced by $10,000 per month.

Therefore,

Lease Expense = Monthly payments × Lease term

                         = $10,000 × 8

                         = $80,000

Above is the lease expense for the eight month term, ignoring taxes.