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10 August, 18:51

King Cones leased ice cream-making equipment from Ace Leasing. Ace earns interest under such arrangements at a 6% annual rate. The lease term is eight months with monthly payments of $10,000 due at the end of each month. King Cones elected the short-term lease option. What is the effect of the lease on King Cones' earnings during the eight-month term (ignore taxes) ?

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  1. 10 August, 19:07
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    Answer: $80,000

    Explanation:

    Given that,

    Annual interest rate = 6%

    Lease term = Eight month

    Monthly payment at the end of each month = $10,000

    King cones earning reduced by $10,000 per month.

    Therefore,

    Lease Expense = Monthly payments * Lease term

    = $10,000 * 8

    = $80,000

    Above is the lease expense for the eight month term, ignoring taxes.
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