Instead of throwing my books across the room when I don’t understand something, I am going to begin hopefully a more therapeutic approach by requesting help from someone out there who is actually smarter than the average bear (I am not). Can someone explain how you get 2,973 as the current portion of the lease obligation in question 8.B. of Reading 40 Volume III (page 559)? I know this is probably easy so please forgive my stupidity. Thanks.
Under point A of the problem, you determined that the lease should be clasified as a capital lease. Under a capital lease, each payment is made of interest and principal repayment, summing to the 20,000 in annual payment. At this point you calculated the entire amount of the lease obligation as being: N=20, I/Y=10 (take the lower of implicit rate or the incremental borrowing rate), PMT=-20,000, FV=0 (the lessee not considering the terminal value of the asset since no transfer of ownership takes place), => PV = 170,271.28 The long term portion of the obligation is the PV of the 19 payments of 20,000 that remain after the first year: N=19, I/Y=10 (take the lower of implicit rate or the incremental borrowing rate), PMT=-20,000, FV=0. That would give you the long term portion of your lease in the amount of 167,298.4 Deduct the value of the long term obligation from the amount of the lease obligation and you get the current portion: 170,271.28 - 167,298.4 = 2,972.88 ~ 2,973. The easy way out is to learn your calculator functions: N=20, I/Y=10 (take the lower of implicit rate or the incremental borrowing rate), PMT=-20,000, FV=0 (the lessee not considering the terminal value of the asset since no transfer of ownership takes place), => PV = 170,271.28 Press 2ND PV, input P1=1, P2=1, at arrow down you get first the balance, second the principal of 2,972.88
I believe map1 wanted to say do 2nd Amort function on your TI BA Calc. enter P1 = 1, P2=1 and get Balance, Principal as above. CP
yeap, on the TI BAII Plus (mine is the professional version). Pressing 2ND will activate the Amort function of the TI BAII calculator.
Thank you both for the help. Learning how to do this on the calculator was more help than I thought I’d get out of this one simple question. Thank you again.