Exercise 21A2 ac Part Level Submission On December 31 2016 M

Exercise 21A-2 a-c (Part Level Submission) On December 31, 2016, Metlock Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Metlock to make annual payments of $8,482 at the beginning of each year, starting December 31, 2016. The machine has an estimated useful life of 6 years and a $5,000 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Metlock uses the straight-line method of depreciation for all of its plant assets. Metlock\'s incremental borrowing rate is 8%, and the lessors implict rate i unknown. (a) Your answer is correct. What type of lease is this? finance This is a/an lease. Click if you would like to Show Work for this question: Open Show Work SHOW LIST OF ACCOUNTS SHOW SOLUTION SHOW ANSWER LINK TO TEXTLINK TO TEXT Attempts: 1 of 3 used (b) Compute the present value of the lease payments. (For calculation purposes, use 5 decimal places as displayed in the factor table provided and round final answer to O decimal places, e.g. 5,275.) Present value of the lease payments Click if you would like to Show Work for this question: Open Show Work

Solution

Answer 1. Finance Lease Since the Lease Term (83.33% of economic Life) > 75 % of Economic Life of Machine Answer 2. PV of the Lease Payments = $8,482 X 4.31213 PV of the Lease Payments = $36,575.49 or say $36,575 (approx.)