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.
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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Make sure to do Journal Entries
Lease example
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.
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