Question
In: Accounting
On January 1, 2018, Gemini Corporation leased equipment under a finance lease designed to earn the...
On January 1, 2018, Gemini Corporation leased equipment under a finance lease designed to earn the lessor a 12% rate of return for providing long-term financing. The lease agreement specified ten annual payments of $225,000 beginning January 1, and each December 31 thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance of the equipment as required for a fee of $15,000 per year. Insurance premiums of $12,000 annually are related to the equipment. Both amounts were to be paid by the lessor and the lease payments reflect both expenditures. At what amount will Gemini record a right-of-use asset? (Round your answer to the nearest whole dollar amount.)
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a. $1,423,856 |
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b. $1,139,085 |
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c. $1,234,009 |
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d. $1,328,932 |
Solutions
Expert Solution
Answer = a. $1,423,856
Detailed Calculation
| Year | Date | Lease Payment | Maintainance | Insurance | PV Factor @ 12% | Present Value |
| 1 | 01-01-2018 | 2,25,000 | 15,000 | 12,000 | 0.8929 | 2,25,000 |
| 2 | 01-01-2019 | 2,25,000 | 15,000 | 12,000 | 0.7972 | 2,00,893 |
| 3 | 01-01-2020 | 2,25,000 | 15,000 | 12,000 | 0.7118 | 1,79,369 |
| 4 | 01-01-2021 | 2,25,000 | 15,000 | 12,000 | 0.6355 | 1,60,151 |
| 5 | 01-01-2022 | 2,25,000 | 15,000 | 12,000 | 0.5674 | 1,42,992 |
| 6 | 01-01-2023 | 2,25,000 | 15,000 | 12,000 | 0.5066 | 1,27,671 |
| 7 | 01-01-2024 | 2,25,000 | 15,000 | 12,000 | 0.4523 | 1,13,992 |
| 8 | 01-01-2025 | 2,25,000 | 15,000 | 12,000 | 0.4039 | 1,01,779 |
| 9 | 01-01-2026 | 2,25,000 | 15,000 | 12,000 | 0.3606 | 90,874 |
| 10 | 01-01-2027 | 2,25,000 | 15,000 | 12,000 | 0.3220 | 81,137 |
| Present Value | 14,23,856 |
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