On January 2, 2021, Hanson Leasing Company leases equipment to Foley Co. with 5 equal annual payments of $240,000 each, payable beginning January 2, 2021. Foley Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual is $0. Foley's incremental borrowing rate is 10%, however, it knows that Hanson's implicit interest rate is 8%. The journal entry Hanson makes on January 2, 2021, includes a debit to a right-of-use asset for.

PV Annuity DuePV Ordinary AnnuityPV Single Sum

8%, 5 periods 4.31213 3.99271.68508

10%, 5 periods 4.16986 3.79079.62092

a. $897,674.

b. $1,034,910.

c. $1,061,013.

d. $1,137,673.

Question

Corbin Haley

Business

12 April, 21:32

On January 2, 2021, Hanson Leasing Company leases equipment to Foley Co. with 5 equal annual payments of $240,000 each, payable beginning January 2, 2021. Foley Co. agrees to guarantee the $150,000 residual value of the asset at the end of the lease term. The expected value of the residual is $0. Foley's incremental borrowing rate is 10%, however, it knows that Hanson's implicit interest rate is 8%. The journal entry Hanson makes on January 2, 2021, includes a debit to a right-of-use asset for.

PV Annuity DuePV Ordinary AnnuityPV Single Sum

8%, 5 periods 4.31213 3.99271.68508

10%, 5 periods 4.16986 3.79079.62092

a. $897,674.

b. $1,034,910.

c. $1,061,013.

d. $1,137,673.

+1

Answers (1)

Know the Answer?

Omari Logan · Answer 1

The correct answer is (d) $1137673

Explanation:

Solution

Journal Entry:

The Equal annual payments 240000

X PV Annuity Due 8%, 5 periods 4.31213

Present value of Equal annual payments 1034911

The Residual value 150000

X PV Single 8%, 5 periods 0.68508

Present value of residual value 102762

Present value of Equal annual payment 1034911

Add: Present value of residual value 102762

The Debit to right-of-use asset 1137673