Question

On January 1, 2021, Jasperse Corporation leased equipment under a finance lease designed to earn the lessor a 10% rate of return for providing long-term financing. The lease agreement specified ten annual payments of $90,000 beginning January 1, and each December 31 thereafter through 2029. A 10-year service agreement was scheduled to provide maintenance of the equipment as required for a fee of $5,000 per year. Insurance premiums of $4,000 annually are related to the equipment. Both amounts were to be paid by the lessor and lease payments reflect both expenditures (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

At what amount will Jasperse record a right-of-use asset?
PV factors based on
Table or Calculator function: PVAD of $1
Lease Payment
n = 10
i = 12%
Right-of-use asset

Answer 1

$574,517

Step-by-step explanation:

Calculation for the amount that Jasperse will record a right-of-use asset

Annual payments = $90,000

Annual maintenance = $5,000 per year

Rate of interest = 10%

Period, n = 10 years

Right of use asset =(90,000 – 5,000) x PVAD, 10%, 10

Right of use asset= 85,000 ×6.75902

Right of use asset= $574,517

Therefore Right-of-use asset will be $574,517