Kensington Ltd decides to lease some equipment from Piccadilly Ltd on the following terms: $$\begin{array} { | l | r | l | }
\hline \text { Duration of lease } & 15 \text { years } & \
\hline \text { Life of leased asset } & 17 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 5,000 & \
\hline \text { Lease payment } & \$ 6,000 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 4,500 & \text { per year (15 payments) } \
\hline
\end{array}$$ If the interest rate implicit in the lease is 8%,what is the fair value of the equipment at the inception of the lease (rounded to the nearest dollar)?

Question

Kensington Ltd decides to lease some equipment from Piccadilly Ltd on the following terms: $$\begin{array} { | l | r | l | } 
\hline \text { Duration of lease } & 15 \text { years } & \
\hline \text { Life of leased asset } & 17 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 5,000 & \
\hline \text { Lease payment } & \$ 6,000 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 4,500 & \text { per year (15 payments) } \
\hline
\end{array}$$ If the interest rate implicit in the lease is 8%,what is the fair value of the equipment at the inception of the lease (rounded to the nearest dollar)?

Quizplus · Accepted Answer

The Answer is B

Kensington Ltd Decides to Lease Some Equipment from Piccadilly Ltd