Question

Crane Ltd., which has a calendar year end, entered into an equipment lease on June 1, 2020, with GH Financing Limited. The lease term is two years and requires payments of $2,600 at the end of each month beginning September 30. The stated rate of interest in the lease is 6%. As an incentive for entering into the contract, GH has agreed to forgive the first three payments under the lease (June, July, and August).

Calculate the amount that Crane should record for the lease obligation on June 1, 2020. Hint: Calculate the present value of the monthly payments as at September 1, 2020, and then discount this amount to June 1, 2020. (Round answer to 2 decimal places, e.g. 5,275.25.)

What is the amount of the interest accrual that Crane will record on June 30, 2020, for the lease obligation? (Round answer to 2 decimal places, e.g. 5,275.25.)

Answer 1

Interest rate per month (6%/12)			0.50%
At the end of the month	Discount factor @ 0.50%	Monthly payment	Present value
Sep, 2020	0.99502	$          2,600	$    2,587.06
Oct, 2020	0.99007	$          2,600	$    2,574.19
Nov, 2020	0.98515	$          2,600	$    2,561.39
Dec, 2020	0.98025	$          2,600	$    2,548.64
Jan, 2021	0.97537	$          2,600	$    2,535.96
Feb, 2021	0.97052	$          2,600	$    2,523.35
Mar, 2021	0.96569	$          2,600	$    2,510.79
Apr, 2021	0.96089	$          2,600	$    2,498.30
May, 2021	0.95610	$          2,600	$    2,485.87
Jun, 2021	0.95135	$          2,600	$    2,473.50
Jul, 2021	0.94661	$          2,600	$    2,461.20
Aug, 2021	0.94191	$          2,600	$    2,448.95
Sep, 2021	0.93722	$          2,600	$    2,436.77
Oct, 2021	0.93256	$          2,600	$    2,424.65
Nov, 2021	0.92792	$          2,600	$    2,412.58
Dec, 2021	0.92330	$          2,600	$    2,400.58
Jan, 2022	0.91871	$          2,600	$    2,388.64
Feb, 2022	0.91414	$          2,600	$    2,376.75
Mar, 2022	0.90959	$          2,600	$    2,364.93
Apr, 2022	0.90506	$          2,600	$    2,353.16
May, 2022	0.90056	$          2,600	$    2,341.46
Present value of the monthly payments as at September 1, 2020			$ 51,708.75
At the end of the month	Discount factor @ 0.50%	Payment	Present value
Jun, 2020	0.99502	$                 -	$                 -
Jul, 2020	0.99007	$                 -	$                 -
Aug, 2020	0.98515	$ 51,708.75	$ 50,940.81
Crane should record for the lease obligation on June 1, 2020			$ 50,940.81
What is the amount of the interest accrual that Crane will record on June 30, 2020, for the lease obligation?
Lease obligation on June 1, 2020			$ 50,940.81
Multiply: Interest rate per month (6%/12)			0.50%
Interest accrual that Crane will record on June 30, 2020, for the lease obligation			$        254.70