Bonzo Biggie called with the following information about a lease he signed on January 11, 2011.
The lease begins on July 1, 2011.There are no payments for the first six months. For the next six months, the monthly payments are $500. Then, he will pay $750 per month for the next two years. For the final year of the lease, the payments will be $1,000 per month.The equipment that he is leasing would cost him $25,000 if he bought it outright. He will be able to use the equipment for the next ten years. His banker would charge him 12% interest on a loan of this type.Each lease payment is due on the first day of each month.
You might recall that Bonzo is a close friend of mine. He is not the brightest bulb in the pack, so to speak. At our high school graduation, we all cheered when the principal called his name. As you might imagine, there was considerable doubt about his completing high school. That aside, he is also our wealthiest client.Bonzo wants to know how this lease will affect his 2011 financial statements.