Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Metcalf. The six-year lease requires payment of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at a. $848,761. b. $814,435. c. $723,943. d. $694,665.
Metcalf Company leases a machine from Vollmer Corp. under an agreement which meets the criteria to be a finance lease for Metcalf. The six-year lease requires payment of $170,000 at the beginning of each year, including $25,000 per year for maintenance, insurance, and taxes. The incremental borrowing rate for the lessee is 10%; the lessor's implicit rate is 8% and is known by the lessee. The present value of an annuity due of 1 for six years at 10% is 4.79079. The present value of an annuity due of 1 for six years at 8% is 4.99271. Metcalf should record the leased asset at a. $848,761. b. $814,435. c. $723,943. d. $694,665.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Metcalf Company leases a machine from
Vollmer Corp. under an agreement which meets
the criteria to be a finance lease for Metcalf. The
six-year lease requires payment of $170,000 at
the beginning of each year, including $25,000
per year for maintenance, insurance, and taxes.
The incremental borrowing rate for the lessee is
10%; the lessor's implicit rate is 8% and is known
by the lessee. The present value of an annuity
due of 1 for six years at 10% is 4.79079. The
present value of an annuity due of 1 for six years
at 8% is 4.99271. Metcalf should record the
leased asset at
a. $848,761.
b. $814,435.
c. $723,943.
d. $694,665.
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