When the market rate of interest was 9%,Kennesaw Van Lines leased several transfer trucks.The annual payments are $1,000,000 and the life of the lease is 8 years.It is estimated that the useful life of the trucks is 10 years.The present value interest factors for 9% are provided below: $\begin{array}{lll}
\underline { \mathrm { n } } & \underline{ \mathrm { PV } ( \$ 1 ) } &\underline{ \mathrm { PV } ( \text { annuity) } } \
8 & 0.502 & 5.535 \
9 & 0.460 & 5.995 \
10 & 0.422 & 6.418
\end{array}$
The company should record the acquisition of the trucks (rounded to nearest thousand)as an asset with a cost of:

Question

When the market rate of interest was 9%,Kennesaw Van Lines leased several transfer trucks.The annual payments are $1,000,000 and the life of the lease is 8 years.It is estimated that the useful life of the trucks is 10 years.The present value interest factors for 9% are provided below: $\begin{array}{lll}
\underline { \mathrm { n } } & \underline{ \mathrm { PV } ( \$ 1 ) }  &\underline{ \mathrm { PV } ( \text { annuity) } }  \
8 & 0.502 & 5.535 \
9 & 0.460 & 5.995 \
10 & 0.422 & 6.418
\end{array}$
The company should record the acquisition of the trucks (rounded to nearest thousand)as an asset with a cost of:

Quizplus · Accepted Answer

The present value of the lease payments is calculated using the present value of an annuity factor for 8 years at 9%, which is 5.535. Therefore, the cost of the asset is $1,000,000 * 5.535 = $5,535,000.

When the Market Rate of Interest Was 9%,Kennesaw Van Lines