Question

On January 1, 2018, Gemini Corporation leased equipment under a finance lease designedto earn the lessor a 12% rate of return for providing long-term financing. The lease agreementspecified ten annual payments of $225,000 beginning January 1, and each December 31thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance ofthe equipment as required for a fee of $15,000 per year. Insurance premiums of $12,000 annuallyare related to the equipment. Both amounts were to be paid by the lessor and the lease paymentsreflect both expenditures. At what amount will Gemini record a right-of-use asset

Answer 1

Answer:

14,23,856

Explanation:

Gemini will record the right of use asset at NPV and NPV can be calculated by by multiplying the annual lease payment with th

discount factor after adding maintainance and insurace cost.  

           

Year   Lease Payment   Maintainance   Insurance    Factor      PV

1             2,25,000         15,000                12,000        0.8929    225,000

2            2,25,000         15,000                12,000        0.7972     200,893

3            2,25,000         15,000                12,000        0.7118      179,369

4            2,25,000         15,000                12,000        0.6355    160,151

5           2,25,000          15,000               12,000         0.5674    142,992

6           2,25,000          15,000               12,000         0.5066    127,671

7           2,25,000          15,000               12,000         0.4523     113,992

8           2,25,000          15,000               12,000         0.4039     101,779

9           2,25,000          15,000              12,000          0.3606     90,874

10         2,25,000          15,000               12,000         0.3220       81,137

Present Value                                                                                1,423,856

Gemini will record the right of use at 1,423,856