Case Scenario:
Bush Corporation signed a lease for equipment from EZ Leasing Company on January 1 20X2, for a period of ten years at $40,000 per year, including insurance of $3,000 and taxes of $2,000 per year. The equipment had a useful life of fifteen years. At the end of the lease, Bush will have the option of buying the equipment outright for a dollar. Bush's incremental borrowing rate is 8%, and the rate implicit in the lease (which is known to Bush) is 6%. Lease payments are due every year on December 31. The present value of an annuity for various terms and rates are as follows:
6% 8%
10 years 7.360 6.710
15 years 9.712 8.559
On its financial statements for the year ended June 30, 20X2, Bush will display the following:
- Accumulated Equipment:
- Lease Depreciation:
- Accrued Payable:
- Interest: