XYZ Rental leased a special crane to ABC INC.that originally cost $40,000.The lease was for six years and the rentals were $10,000 per year,payable at each year-end.The implicit interest rate was 10 percent.XYZ Rental recognized a gross margin (dealer's profit)of (rounded to nearest dollar):

Question

Quizplus · Accepted Answer

The correct answer is A. The gross margin (dealer's profit) is the difference between the present value of the lease rentals and the cost of the crane. The present value of the lease rentals is $46,388, and the cost of the crane is $40,000. Therefore, the gross margin is $46,388 - $40,000 = $6,388.

XYZ Rental Leased a Special Crane to ABC INC