Step-by-step explanation:
To calculate the sales price of the asset (the present value of the lease payments), you can use the implicit interest rate of 9% provided by Wildhorse Leasing Company.
The lease payments are $157,000 each for 5 years, and there is an expected residual value of $25,000 at the end of the lease term.
You can calculate the present value of these payments using the implicit interest rate of 9%. The formula to calculate the present value of an annuity is:
PV = PMT x [(1 - (1 + r)^(-n)) / r]
Where:
PV = Present Value
PMT = Payment per period ($157,000)
r = Interest rate per period (9% or 0.09)
n = Number of periods (5 years)
PV = $157,000 x [(1 - (1 + 0.09)^(-5)) / 0.09]
PV ≈ $620,906.73
Now, add the expected residual value of $25,000 to the present value:
Sales Price = PV + Residual Value
Sales Price = $620,906.73 + $25,000
Sales Price = $645,906.73
So, Wildhorse Leasing Company will record the sales price of the asset as approximately $645,906.73.