At the beginning of the year, HIJ Corp. began to lease new equipment ...

By Investopedia Staff AAA
Q:

At the beginning of the year, HIJ Corp. began to lease new equipment. This lease is being capitalized and its term has been set for 8 years. The rate implicit in the lease is 8.5% and thus, the original value of the capitalized lease is determined to be $712,000. If at the end of the year, the company is reporting a lease obligation of $652,000, what must be the annual total lease payments?


A) $60,520
B) $120,520
C) $149,000
D) $60,000

A:

The correct answer is: b)
Total Lease Payment = Interest expense + Principal repayment
Step 1: Interest expense = 8.5% of 712,000 = 60,520
Step 2: Principal repayment = 712,000 - 652,000 = 60,000
Step 3: Total Lease Payment = 60,520 + 60,000 = $120,520


RELATED FAQS

  1. You are analyzing a small company's financials, and notice that the bookkeeper made ...

    The best answer is 2. 1 is tempting, but wrong, because an asset "sounds like" a debit but the depreciation expense here ...
  2. Which of the following statements is (are) true with respect to the key characteristics ...

    The correct answer is: a) (I) is incorrect. The rule is that if the Standards are more strict than local laws, yet they are ...
  3. A company issues some shares in order to finance the purchase of some more production ...

    The correct answer is: a) This transaction will increase the assets of the company and its equity by the same amount. Hence, ...
  4. Which one of the following uses of the "CFA" trademark is correct ...

    The correct answer is e. The correct use the CFA abbreviation is one the most important things to know as a CFA candidate. ...
RELATED TERMS
  1. No results found.

You May Also Like

Related Articles
  1. No results found.
Trading Center