Question
In: Accounting
Tiner Leasing Company purchased specialized equipment from Fred Company on December 31, 2019 for $800,000. On...
Tiner Leasing Company purchased specialized equipment from Fred
Company on December 31, 2019 for $800,000. On the same date, it leased this equipment to Tears Company for 6 years, the useful life of the equipment. The lease payments begin January 1, 2020 and are made every 6 months. Tiner Leasing wants to earn 9% annually on its investment.
(a) Calculate the amount of each rent. $ __________
(b) How much interest revenue will Tiner earn in 2020? $ __________
Solutions
Expert Solution
The Amount of each rent = $87,732.95
Interest revenue in the year 2020 (i.e.for first 2 periods) = $36000+$33672=$69,672
(Explanation to the answer is given below)
| Period | Payment | Principal Part | Interest Part | Balance |
| 1 | $87,732.95 | $ 51,732.95 | $ 36,000.00 | $748,267.05 |
| 2 | $87,732.95 | $ 54,060.93 | $ 33,672.02 | $694,206.12 |
| 3 | $87,732.95 | $ 56,493.67 | $ 31,239.28 | $637,712.45 |
| 4 | $87,732.95 | $ 59,035.89 | $ 28,697.06 | $578,676.56 |
| 5 | $87,732.95 | $ 61,692.51 | $ 26,040.44 | $516,984.05 |
| 6 | $87,732.95 | $ 64,468.67 | $ 23,264.28 | $452,515.38 |
| 7 | $87,732.95 | $ 67,363.76 | $ 20,369.19 | $385,145.62 |
| 8 | $87,732.95 | $ 70,401.40 | $ 17,331.55 | $314,744.22 |
| 9 | $87,732.95 | $ 73,569.46 | $ 14,163.49 | $241,174.76 |
| 10 | $87,732.95 | $ 76,880.09 | $ 10,852.86 | $164,294.67 |
| 11 | $87,732.95 | $ 80,339.69 | $ 7,393.26 | $83,954.98 |
| 12 | $87,732.95 | $ 83,954.98 | $ 3,777.97 | ($0.00) |
The monthly payment is derived by using the formula EMI = [P x R x (1+R)^N]/[(1+R)^N-1]
=>EMI= 800000*4.5%*((1+4.5%)^12)/((1+4.5%)^12-1)
=>$87,732.95
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