On March 31, 2021, Southwest Gas leased equipment from a supplier and agreed to pay $370,000 annually for 20 years beginning March 31, 2022. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $4,611,018 lease liability. (FV of $1, PV of $1. FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Determine the interest rate implicit in the lease agreement. (Do not round intermediate calculations.) Present value of lease:
On March 31, 2021, Southwest Gas leased equipment from a supplier and agreed to pay $370,000 annually for 20 years beginning March 31, 2022. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $4,611,018 lease liability. (FV of $1, PV of $1. FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Determine the interest rate implicit in the lease agreement. (Do not round intermediate calculations.) Present value of lease:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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17.
Transcribed Image Text:On March 31, 2021, Southwest Gas leased equipment from a supplier and agreed to pay $370,000 annually for 20 years beginning
March 31, 2022. Generally accepted accounting principles require that a liability be recorded for this lease agreement for the present
value of scheduled payments. Accordingly, at inception of the lease, Southwest recorded a $4,611,018 lease liability. (FV of $1, PV of $1,
FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
Determine the interest rate implicit in the lease agreement. (Do not round intermediate calculations.)
Present value of lease:
n =
Lease payments
Expert Solution
Step 1
Present value is the current value of a future sum of money given at a specified rate of interest.
Present value of annuity is computed by multiplying PVA of $1 at specified rate of interest and period by annuity amount.
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