Question:
Renter Co. acquired the use of a machine by agreeing to pay the manufacturer of the machine $7,500 per year for 10 years. At the time the lease was signed, the interest rate for a 10-year loan was 12%.
Required:
a. Use the appropriate factor from Table 6-5 to calculate the amount that Renter Co. could have paid at the beginning of the lease to buy the machine outright.
b. What causes the difference between the amount you calculated in part a and the total of $75,000 ($7,500 per year for 10 years) that Renter Co. will pay under the terms of the lease?
c. What is the appropriate amount of cost to be reported in Renter Co.’s balance sheet (at the time the lease was signed) with respect to this asset?
Data from in Table 6-5
Transcribed Image Text:
No. of
Periods
1
2
3
45
5
67899
10
11
12
13
14
15
16
17
18
19
20
Discount Rate
2%
8%
10%
12%
14%
0.980 0.9615 0.9434
0.9259 0.9091 0.8929 0.8772
1.942 1.8861 1.8334 1.7833 1.7355 1.6901 1.6467 1.6052
2.884 2.7751 2.6730 2.5771 2.4869 2.4018 2.3216 2.2459
3.808 3.6299
3.3121 3.1699 3.0373 2.9137 2.7982
3.9927 3.7908
3.4651
4.713 4.4518 4.2124
3.6048
3.4331
4%
5.601 5.2421 4.9173
4.5638
4.6229 4.3553 4.1114
6.472 6.0021 5.5824 5.2064 4.8684
7.325 6.7327 6.2098
8.162 7.4353 6.8017
8.983 8.1109 7.3601
5.7466 5.3349 4.9676
6.2469 5.7590 5.3282
6.7101 6.1446
5.6502
9.787
8.7605 7.8869
10.575
9.3851 8.3838
11.348 9.9856 8.8527
12.106 10.5631 9.2950
12.849 11.1184 9.7122
7.1390
7.5361
7.9038
7.1034
8.2442
7.3667
8.5595 7.6061
6.4951 5.9377
6.8137
6.1944
6.4235 5.8424
6.6282
6.0021
6.8109
6.1422
16%
0.8621 0.8475
1.5656
2.1743
18%
3.8887
3.6847
3.4976
4.2883 4.0386
3.8115
4.6389 4.3436 4.0776
4.9464
4.6065 4.3030
5.2161
4.8332 4.4941
6.9740 6.2651
13.578 11.6523 10.1059 8.8514 7.8237
14.292 12.1657 10.4773 9.1216 8.0216
7.1196
6.3729
7.2497
14.992 12.6593 10.8276 9.3719 8.2014
15.678 13.1339 11.1581 9.6036 8.3649 7.3658
16.351 13.5903 11.4699 9.8181 8.5136 7.4694 6.6231
6.4674
6.5504
2.6901
3.2743 3.1272
5.4527
5.0286
4.6560
5.6603 5.1971
4.7932
5.3423
4.9095
5.4675 5.0081
5.5755 5.0916
5.6685
5.1624
5.7487 5.2223
5.8178 5.2732
5.8775 5.3162
5.9288 5.3527
20%
0.8333
1.5278
2.1065
2.5887
2.9906
3.3255
3.6046
3.8372
4.0310
4.1925
4.3271
4.4392
4.5327
4.6106
4.6755
4.7296
4.7746
4.8122
4.8435
4.8696