Intermediate III Ch15Q2 | A finance lease agreement calls for quarterly lease payments of $5,376 - YouTube

hey everybody John Bradshaw here we would question to lease and lessor

calculate interest all about let's get started

A finance lease agreement calls for quarterly lease payments of $5,376 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $150,000.

so we have two questions requirement a prepare a

partial amortization table up to October first payment MA pretty easy requirement

B what would be the amount of interest expense revenue the lessee lessor would

record in conjunction with us that can quarterly payment in October first we'll

talk about that in a minute but let's just kind of prepare this amortization

table so requirement a prepare the a partial amortization table so start off

with the outstanding balance so we know that the we're gonna look for the

present value of the payment so they're paying five thousand three hundred

seventy six you can figure out the present value of an annuity due then you

get that number times is and it'll give you the present value the lease payments

is a hundred and fifty thousand so the outstanding balance is one hundred and

fifty thousand dollars pretty simple now this calls for a quarterly lease

payment five thousand three hundred seventy six so again the lease payment

you like first because you pay at the beginning of the lease right here with

first payment on July first the beginning of the lease says in the

question we're gonna put the payment of five thousand three hundred seventy six

on July first now is there any effective interest no

because this is on the first day of the lease and interest is on calculated on

equally base or yeah now the decrease in balance is

gonna be the five thousand three hundred seventy six because the whole lease

payment goes straight to the principal or the outstanding balance of the

hundred fifty thousand dollars so you get the lease payment - I mean the

outstanding balance - Ellie's payment excuse me is gonna give you this one

hundred forty four thousand six twenty four now for October first what was the

lease payment this is about three months later a quarter on the next quarter

lease payment is going to be the same five thousand three hundred seventy six

this doesn't change this however we do have effective interest because it has

been three months it's been about three months and this is compounded it's a

quarter lease payments quarterly lease payments so how do we do this we get the

annual interest rate of 8% point zero eight divided by four right because it's

quarterly so you're paying about two percent per quarter right next we take

the outstanding balance of the July first

right and we can see we multiply this by our interest times 144 624 so this is

going to be our effective interest to two thousand eight hundred ninety two

and forty eight sensible roundups so two thousand eight hundred ninety two

right and now what is our decrease in balance so if two thousand eight hundred

ninety two is interest that means that the remainder of the lease payment goes

towards the balance so we can just kind of subtract this from three to five

thousand three hundred seventy six so about two thousand four hundred eighty

three dollars fifty two cents or two thousand four hundred eighty four is a

decrease in balance 2484 but boom that leaves our outstanding balance at the

end of October as one hundred and forty two thousand one hundred so 144 minus

two thousand four eighty four gives you the outstanding balance let's check out

requirement B so what would the amount of interest expense or revenue the

lessor lessee lessor would record in conjunction with the second quarterly

payment on October first so it's asking for the second quarterly payment on

October first so we go here October first this is gonna be our second

payment is our first one second one second payment October first and the

effective interest is 2890 two now when you think about this that means that the

interest expense for the lessee he's gonna be paying this much two thousand

eight ninety two as uh as an interest expense and the lessor the person

leasing the making the lease right getting the money is gonna be his

revenue so this is gonna be the same for both two thousand eight ninety two is

gonna be an expense two thousand eight ninety two is gonna be the lease expense

in two thousand eight ninety two is gonna be the revenue of the lessor and

of course everybody you always gotta check the work I always check the work

make sure everything's good make sure you make sure you know oh yeah look at

this complete and correct complete and correct pretty good so that's how you

solve it everybody not too difficult right so if this helped you out leave a

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if you have any questions leave a comment I'll try to answer your

questions the best I can and if I can't hopefully somebody else can comment and

do me a solid and help you out and we can all help each other out because

that's this is about that's what this is about about helping each other out right

we're all trying to get through school let's just you know help each other out

anyway appreciate the view leave a like I'll see you guys on question three next

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