Dillon Co., a lessor, signed a direct financing lease on January 1.The cost and fair value of the machine that was leased was $60, 000.The implicit interest rate was 6%.The lease period was seven years, with the first payment due immediately.Actuarial information for 6% follows: $\begin{array}{llcc}
& 6 \text { Years }& 7 \text { Years }& 8 \text { Years }\
\text { Present value of ordinary anuity of } \$ 1&4.91732&5.58238&6.20979 \
\end{array}$
What is the annual lease payment to be collected by Dillon?
A)$ 8, 571.43
B)$ 9, 115.25
C)$10, 139.72
D)$11, 516.78

Question

Dillon Co., a lessor, signed a direct financing lease on January 1.The cost and fair value of the machine that was leased was $60, 000.The implicit interest rate was 6%.The lease period was seven years, with the first payment due immediately.Actuarial information for 6% follows: $\begin{array}{llcc}
&  6 \text { Years }& 7 \text { Years }&  8 \text { Years }\
\text { Present value of ordinary anuity of } \$ 1&4.91732&5.58238&6.20979 \
\end{array}$
 What is the annual lease payment to be collected by Dillon?
A)$ 8, 571.43
B)$ 9, 115.25
C)$10, 139.72
D)$11, 516.78

Quizplus · Accepted Answer

The present value of the lease payments should equal the fair value of the machine, which is $60,000. Using the present value of an ordinary annuity factor for 7 years at 6% (5.58238), the annual lease payment is calculated as $60,000 / 5.58238 = $10,139.72.

Dillon Co, a Lessor, Signed a Direct Financing Lease on January