Roscoe Company entered into a lease of special equipment to Mac Company. The lease term was six years. The equipment cost Roscoe $40,000 and Roscoe plans to earn a $4,000 dealer profit. Roscoe's implicit rate on the lease is 12 percent.
As a result of this agreement, Roscoe will receive year-end lease payments of

Question

Quizplus · Accepted Answer

To calculate the year-end lease payment, we need to use the present value of annuity formula.

PV = Lease payment x [1 - (1 + r)^-n] / r

PV = $40,000 + $4,000 (dealer profit) = $44,000 
r = 12% 
n = 6

Plug in the values:

$44,000 = Lease payment x [1 - (1 + 0.12)^-6] / 0.12

Solve for the lease payment:

Lease payment = $10,702.

So the year-end lease payments that Roscoe will receive are $10,702. Therefore, the correct answer is C.

Roscoe Company Entered into a Lease of Special Equipment to Mac