# Lease again 2

I feel weak in here so I need to nail this topic before the end of the week. hope U won’t feel as worried as I do On December 31, 2003, Numark Co. leased a machine from Hardie Ltd. for a five-year period. Equal annual payments under the lease are \$315,000 (including \$15,000 annual executory costs) and are due on December 31 of each year. The first payment was made on December 31, 2003, and the second payment was made on December 31, 2004. The five lease payments are discounted at 10% over the lease term. The present value of minimum lease payments at the inception of the lease and before the first annual payment was \$1,251,000. The lease is appropriately accounted for as a capital lease by Numark. In its December 31, 2004 balance sheet, Numark should report a lease liability of: A. \$951,000. B. \$936,000. C. \$855,900. D. \$746,100

Hmmm…is it B?

ok let me give u a hint: The 15,000 execution cost is irrelevant I had to get that one wrong too

Right, then is it A?

D:-)

ho :s … no should I post the answer or u want another try ? I do not know how u conclude A … other hint: annuity due to be honest I’m still not ok with that one …

I think strangedays is correct, tottaly missed the second payment:))

yep !! The amount of the liability is the present value of the lease payments on December 31, 2003 less the payment made in 2003 plus the executory costs. \$1,251,000 - \$315,000 + \$15,000 = \$951,000 (2003) \$951,000 - [\$300,000 - (\$951,000 x .10)] = \$746,100 (2004)

Easier: with calculator in BGN, PV=-1251000, PMT=300,000, FV=0, N=5, I/Y=10 2nd AMORT P1=1, P2=2, there you have the balance:)

why is the first payment all principal?

because it is made immediatelly at inception?

map1 Wrote: ------------------------------------------------------- > Easier: > > with calculator in BGN, PV=-1251000, PMT=300,000, > FV=0, N=5, I/Y=10 > > 2nd AMORT P1=1, P2=2, there you have the balance:) map when I do this I get 883,710 with is the wrong answer

do you have it in begin mode?

yeah … why is it so ? … erm … cuz its the FIRST day of the lease and interest for 0 days = 0 ? sure there oughtta be a better logic…

thank you map

ahhh I get it now, yes Darius that it why is is all principal jeez gotta read this ish more carefully!