# Capital Lease

A company leased an airplane under the following terms: The lease is a 10-year capital lease The present value of the lease payments discounted at the appropriate interest rate (10%) is \$5,000,000 The company uses the straight-line depreciation method. The company does not own the asset or have a purchase option at the end of the lease. In the first year, the reported lease related expense is: A \$1,000,000.00 B \$500,000.00 C \$50,000.00 D \$0.00

B

I’m saying A. Isn’t it dep + int expense?

I think it’s A Depreciation = \$500,000 per YR interest = \$500,000 Total \$1,000,000

A it is!

nie catch guys, starting FSA again right now

But how you get depreciation cost??? doesnt the question only mention the interest expense??? cheers,

can some one please go over this question.

gingerduck Wrote: ------------------------------------------------------- > But how you get depreciation cost??? doesnt the > question only mention the interest expense??? > cheers, 5m/10= 500000 total expense= interest + depreciation =500 + 500= 1000

strangedays Wrote: ------------------------------------------------------- > gingerduck Wrote: > -------------------------------------------------- > ----- > > But how you get depreciation cost??? doesnt the > > question only mention the interest expense??? > > cheers, > > > 5m/10= 500000 > > total expense= interest + depreciation =500 + 500= > 1000 do we worry about principal --no right?

KJH Wrote: ------------------------------------------------------- > A company leased an airplane under the following > terms: > The lease is a 10-year capital lease > The present value of the lease payments > discounted at the appropriate interest rate (10%) > is \$5,000,000 > The company uses the straight-line depreciation > method. > The company does not own the asset or have a > purchase option at the end of the lease. > > In the first year, the reported lease related > expense is: > A \$1,000,000.00 > B \$500,000.00 > C \$50,000.00 > D \$0.00 INTEREST EXP IS = BEG BOOK VALUE * RATE RIGHT? = 500,000

daj224 Wrote: ------------------------------------------------------- > KJH Wrote: > -------------------------------------------------- > ----- > > A company leased an airplane under the > following > > terms: > > The lease is a 10-year capital lease > > The present value of the lease payments > > discounted at the appropriate interest rate > (10%) > > is \$5,000,000 > > The company uses the straight-line > depreciation > > method. > > The company does not own the asset or have a > > purchase option at the end of the lease. > > > > In the first year, the reported lease related > > expense is: > > A \$1,000,000.00 > > B \$500,000.00 > > C \$50,000.00 > > D \$0.00 > > INTEREST EXP IS = BEG BOOK VALUE * RATE RIGHT? = > 500,000 Yep, but I usually use the AMORT function in the calculator…short and sweet

Can you run through the AMORT function…I used to use it and now I have a total brain fart on it.

amberpower Wrote: ------------------------------------------------------- > Can you run through the AMORT function…I used to > use it and now I have a total brain fart on it. First based on this information you calculate the FV of the lease payment (you need it in order to use the AMORT function) N=10 PV= 5000000 I/Y=10% Then: 2nd AMORT p1=1 p2=1 and scroll to find PRN boom!

Okay, so if asked for year 2, would p1 and p2 = 2? Those Ps get me for some reason. I always feel like I should put in a range. Thanks!

amberpower Wrote: ------------------------------------------------------- > Okay, so if asked for year 2, would p1 and p2 = 2? > Those Ps get me for some reason. I always feel > like I should put in a range. > > Thanks! Yes