Question

Tamarisk Company leases a building and land. The lease term is 4 years and the annual fixed payments are $720,000. The lease arrangement gives Tamarisk the right to purchase the building and land for $13,750,000 at the end of the lease. Based on an economic analysis of the lease at the commencement date, Tamarisk is reasonably certain that the fair value of the leased assets at the end of lease term will be much higher than $13,750,000.

What are the total lease payments in this lease arrangement?

Answer 1

$17,790,000

Step-by-step explanation:

The computation of the total lease payment is shown below:

As we know that

Total lease payment is

= [(Annual lease payment × Number of years of the lease) + Value of right to purchase at the building and land at the end of the year]

= ($720,000 × 7) + $12,750,000

= $17,790,000

We simply applied the above formula so that the total lease payments could arrive