# Capital lease

The Quinn Corporation has leased equipment for 10 years that requires annual payments of \$100,000, paid at the end of each year. This lease is classified as a capital lease. If the appropriate discount rate is 5%, what is the amount recorded as a capital lease obligation at the end of the second year? A) \$710,782. B) \$772,173. C) \$646,321. D) \$800,000.

1 bv= 772,173 int = 5%*bv = dep = payment - int = 61391 2 bv = 710,782 int = 35539 dep = 64,460 end of 2nd year bv = 646,321 c

that is correct… thanks for explaining…

I got A?

use ur calculator you cant go wrong. (the answer is C)

Unless I misunderstood the question, they want the liability of the lease at the end of year 2. How would I use my calculator?

which one are you using? in any case compute for year 2 using Amortization schedule… if you want to learn more about that, there’s a great tutorial website for TI as for HP… well it’s a lil more complicated

I’m using HP.

try this, 100,000 pmt 10 n 5 i [PV] 2 [f] amort [RCL] PV gives you the answer straight on

meazza Wrote: ------------------------------------------------------- > I got A? i did too…i assumed they wanted it at beginning of year 2 like they usually ask…this one just goes one step further to the end of the second year.

jo_l Wrote: ------------------------------------------------------- > try this, > > 100,000 pmt > 10 n > 5 i > > 2 amort > PV > > gives you the answer straight on I’m not getting it. I do 100 000 PMT 10 N 5 I CPT PV But when I do the other steps it gives me an error.

it asks at “the end of the second year”…

hmmm hp 12 c i hope… no other HP is allowed for the exam

jo_l Wrote: ------------------------------------------------------- > hmmm hp 12 c i hope… > no other HP is allowed for the exam Sorry I’m using BA II not HP. My brain is fried today.

[2nd] amort 1 enter [down arrow] 2 enter [down arrow] first answer gives balance second is how much principal was repaid third gives interest payments to date and you can scroll back and forth changing the p1 and p2 to whatever values you want. (for this question it’s year 0 to year 2 (hence 1-2 on the calculator)

jo_l Wrote: ------------------------------------------------------- > [2nd] amort > 1 enter > 2 enter > > first answer gives balance > second is how much principal was repaid > third gives interest payments to date > and you can scroll back and forth changing the p1 > and p2 to whatever values you want. (for this > question it’s year 0 to year 2 (hence 1-2 on the > calculator) Found it. The thing is, I only use this when they ask me for the liability of the lease after a year? Not for interest exp. Interest exp would be taking the PV of the lease times the int. But if they ask me for the liability after year 1, I’d use this function?

you can use this for any year… p1 = beginning (usually 1) and p2 is when it ends (so if you want year one balance you’d put 1 here)

jo_l Wrote: ------------------------------------------------------- > you can use this for any year… > p1 = beginning (usually 1) > and p2 is when it ends (so if you want year one > balance you’d put 1 here) cool…