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


MORE FAQS

  1. You are currently reviewing the following information for JKL Corp ...

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

  3. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

  4. Why might a bond agreement limit the amount of assets that the firm can lease?

  5. How have low interest rates affected lease rates in the automotive sector?

  6. What are the differences between single, double and triple-net leases?

  7. How does the value of the real estate impact the value of a triple net (NNN) lease?

  8. What kinds of real estate transactions use triple net (NNN) leases?

  9. What is the importance of residual value in an automobile lease?

  10. I have a small business, and I'm considering setting up an SEP IRA. What are leased employees? Does this term refer to outside contractors who receive 1099-Rs? If so, how would the 5305-SEP need to be worded to make it acceptable to the IRS?

  11. What are typical forms of long-term debt for a public company?

  12. If a telecommunication company wants to build a tower on my land how much should I charge?

  13. What are the three "nets" of an NNN lease?

  14. What types of assets may be considered off balance sheet (OBS)?

  15. How does lower borrowing costs affect new airlines in the aerospace industry?

  16. What are the pros and cons of using the fixed charge coverage ratio?

  17. What debt/equity ratio is common for companies in the telecommunications sector?

  18. Why does the majority of my mortgage payment start out as interest and gradually move toward mostly principal?

  19. How does the International Monetary Fund function?

  20. What key requirements must be met for the IRS to classify changes or alterations to a property as qualified leasehold improvements?

RELATED FAQS

  1. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more!
  2. 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%*
  3. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ...
  4. 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 ...
  5. 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 ...
  6. 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 ...
RELATED TERMS
  1. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  2. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  3. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  4. Leasehold

    An accounting term used to classify an asset on a company's balance ...
  5. Lease Utilization

    A financial ratio that measures how much a company uses leasing ...
  6. Minimum Lease Payments

    The lowest amount that a lessee can expect to make on a lease ...

You May Also Like

Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center