A machine that can be purchased for cash today for 100,000, is leased for 3 years, for a down payment of 30,000, plus 3 annual end-of-year payments of 30,000 each. If the residual value is 25,000, what is the effective interest rate implicit in the lease? If the residual value cannot be guaranteed (but the lease payments can), what is the present value of the guaranteed cash flows associated with the lease? (Think of the implications.)

Show journal entries on the date of the lease and every interest date.

Answer rating: 100% (QA)

To calculate the effective interest rate implicit in the lease we can use the present value of the lease payments and the initial cash outlay to deter... View the full answer