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:

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. ### At the beginning of the year, OPQ Corp. began to lease a building using the capitalized ...

The correct answer is: c) Step 1: Calculate the Present Value of the lease: PMT = \$12,000; N = 7; I = 7.5%*
2. ### Why might a bond agreement limit the amount of assets that the firm can lease?

Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ...
3. ### How have low interest rates affected lease rates in the automotive sector?

Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ...
4. ### What are the differences between single, double and triple-net leases?

Learn the ins and outs of net lease agreements, including the key differences between single net, double net and triple net ...
5. ### How does the value of the real estate impact the value of a triple net (NNN) lease?

Understand how the value of the real estate involved in a triple-net lease impacts the value of the lease both positively ...
RELATED TERMS
1. ### Capitalized Lease Method

An accounting approach that identifies a company's lease obligation ...
2. ### Leasehold

An accounting term used to classify an asset on a company's balance ...
3. ### Minimum Lease Payments

The lowest amount that a lessee can expect to make on a lease ...
4. ### Open-End Lease

A rental agreement that obliges the lessee (the person making ...
5. ### Walk-Away Lease

A common type of car lease in which the lessee returns the car ...
6. ### Fixed Price Purchase Option

The right, but not the obligation, to buy a leased item at a ...