Question

On December 31, 2018, Perry Corporation leased equipment to Admiral Company for a five-year period. The annual lease payment, excluding nonlease components, is $ 43,000. The interest rate for this lease is 12%. The payments are due on December 31 of each year. The first payment was made on December 31, 2018. The normal cash price for this type of equipment is $ 150,000 while the cost to Perry was $ 126,000. For the year ended December 31, 2018, by what amount will Perry's earnings increase due to this lease (ignore taxes)?

Answer 1

The correct answer is $24,000.

Step-by-step explanation:

According to the scenario, the computation of the given data are as follows:

Fair value of equipment = $150,000

Cost to Perry = $126,000

So, we can calculate the earning by using following formula:

Profit = Fair value of equipment - Cost to Perry

By putting the value in the formula, we get

Profit = $150,000 - $126,000

= $24,000