On December 31, 2019, Splish Brothers Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Splish Brothers to make annual payments of $8,148 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Splish Brothers uses the straight-line method of depreciation for all of its plant assets. Splish Brothers’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On December 31, 2019, Splish Brothers Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Splish Brothers to make annual payments of $8,148 at the beginning of each year of the lease, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $5,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Splish Brothers uses the straight-line method of depreciation for all of its plant assets. Splish Brothers’s incremental borrowing rate is 10%, and the lessor’s implicit rate is unknown.

 

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Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to 0 decimal places e.g. 5,275.)

Present value of the lease payments  
$                      
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