Rampaging Technology, Inc. is growing rapidly and is expanding its production capacity. An equipment supplier has suggested a lease plan based on a selling price of $350,000. Rampaging would make five equal-size end-of-the-year payments and then own the machine. The supplier expects to earn a return on this financing arrangement of 11.35% compounded annually. Such a lease would be accounted for as a capital lease.

Required

A. Use the PMT function in an Excel spreadsheet to determine the amount of the annual payment that would be required. List the arguments you inserted into the formula.

B. Show how this transaction would be entered into the accounting system at inception of the lease.

C. Prepare an amortization table for the lease.

D. Explain why the annual interest expense decreases during each of the five years.

E. Show the entry that must be made on the date of the first lease payment.

F. Explain how you can tell that the vendor earns an 11.35% rate of return on this transaction.