ial Digital Solutions signed a 3-year lease at the beginning of the current year. The leased equipment has an economic life of 5 nd a fair value of $1,450. Under the terms of the lease, Dial is required to pay $500 on January 1 of each year. There is no urchase option, and Dial must return the equipment at the end of the lease term. etermine whether this lease is a finance or an operating lease if Dial Digital knows that the lessor's implicit rate is 6%. uture Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table resent Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table efore completing the requirement, identify the present value of the lease payments. (Use the present value and future value tab
ial Digital Solutions signed a 3-year lease at the beginning of the current year. The leased equipment has an economic life of 5 nd a fair value of $1,450. Under the terms of the lease, Dial is required to pay $500 on January 1 of each year. There is no urchase option, and Dial must return the equipment at the end of the lease term. etermine whether this lease is a finance or an operating lease if Dial Digital knows that the lessor's implicit rate is 6%. uture Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table resent Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table efore completing the requirement, identify the present value of the lease payments. (Use the present value and future value tab
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Can I get a explanation or formula to calculate this by showing work. Please, I want to actually understand this.
Transcribed Image Text:Dial Digital Solutions signed a 3-year lease at the beginning of the current year. The leased equipment has an economic life of 5 years
and a fair value of $1,450. Under the terms of the lease, Dial is required to pay $500 on January 1 of each year. There is no
purchase option, and Dial must return the equipment at the end of the lease term.
Determine whether this lease is a finance or an operating lease if Dial Digital knows that the lessor's implicit rate is 6%.
Future Value of $1 table Future Value of an Ordinary Annuity table Future Value of an Annuity Due table
Present Value of $1 table Present Value of an Ordinary Annuity table Present Value of an Annuity Due table
Before completing the requirement, identify the present value of the lease payments. (Use the present value and future value tables, the
formula method, a financial calculator, or a spreadsheet for your calculation. If using present and future value tables or the
formula method, use factor amounts rounded to five decimal places, X.XXXXX. Round your final answer to the nearest whole dollar.)
The present value (PV) of the payments due under the lease is
$ 1,417.
Classify this lease agreement as an operating or a finance lease.
Begin by identifying any of the Group I criteria that Dial meets. (Select all that apply. If there is insufficient information to determine if a
specific criteria is met, do not check the box for that criteria.)
1. The lease transfers ownership to the lessee at the end of the lease term.
2. The lessee is given an option to purchase the asset that the lessee is reasonably certain to exercise.
3. The lease term is for a major part of the economic life of the asset.
4. The present value of the sum of the lease payments and any residual value the lessee guarantees to pay (that is not otherwise
included in the lease payment) is equal to substantially all of the asset's fair value.
5. The leased asset is of a specialized nature.
6. The lease does not meet any Group I lease criteria.
This is a(n) finance lease for the lessee (Dial) because at least one of the Group I criteria is(are) met.
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