Question

On January 1, 2018, Gemini Corporation leased equipment under a finance lease designedto earn the lessor a 12% rate of return for providing long-term financing. The lease agreementspecified ten annual payments of $225,000 beginning January 1, and each December 31thereafter through 2026. A 10-year service agreement was scheduled to provide maintenance ofthe equipment as required for a fee of $15,000 per year. Insurance premiums of $12,000 annuallyare related to the equipment. Both amounts were to be paid by the lessor and the lease paymentsreflect both expenditures. At what amount will Gemini record a right-of-use asset

Answer 1

14,23,856

Step-by-step explanation:

Gemini will record the right of use asset at NPV and NPV can be calculated by by multiplying the annual lease payment with th

discount factor after adding maintainance and insurace cost.

Year Lease Payment Maintainance Insurance Factor PV

1 2,25,000 15,000 12,000 0.8929 225,000

2 2,25,000 15,000 12,000 0.7972 200,893

3 2,25,000 15,000 12,000 0.7118 179,369

4 2,25,000 15,000 12,000 0.6355 160,151

5 2,25,000 15,000 12,000 0.5674 142,992

6 2,25,000 15,000 12,000 0.5066 127,671

7 2,25,000 15,000 12,000 0.4523 113,992

8 2,25,000 15,000 12,000 0.4039 101,779

9 2,25,000 15,000 12,000 0.3606 90,874

10 2,25,000 15,000 12,000 0.3220 81,137

Present Value 1,423,856

Gemini will record the right of use at 1,423,856