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Ok, so I'm asking for possible help on HW
Situation:
OnJanuary 1, 2012, Biagio Company (the lessee) enters into a leasing arrangementwith Spencer Corporation (the lessor) for a DNA imaging machine. The agreementincludes a seven-year noncancelable lease and an option to purchase theequipment at the end of the seven-year lease for $5,000 (at which time the fairvalue of the equipment is expected to be $50,000). The equipment has anestimated useful life of ten years and an estimated salvage value of zero atthe end of its useful life. The fair value of the equipment at the inception ofthe lease is $320,000. Biagio's incremental borrowing rate is 8.5% and theinterest rate implicit in the lease is unknown to Biagio Company. Biagio usesthe straight-line method to depreciate all its assets. The lease requiresannual payments of $60,000, which include $4,000 for taxes and insurance,payable at the beginning of each year starting January 1, 2012 through January1, 2018.
So when I get the present value of minimum lease payment i get $313,826 (This is where I'm a little iffy)
And when i put it into my lease amortization chart the balance ends up negative ant not zero.
Any help is appreciated THANKS!
Situation:
OnJanuary 1, 2012, Biagio Company (the lessee) enters into a leasing arrangementwith Spencer Corporation (the lessor) for a DNA imaging machine. The agreementincludes a seven-year noncancelable lease and an option to purchase theequipment at the end of the seven-year lease for $5,000 (at which time the fairvalue of the equipment is expected to be $50,000). The equipment has anestimated useful life of ten years and an estimated salvage value of zero atthe end of its useful life. The fair value of the equipment at the inception ofthe lease is $320,000. Biagio's incremental borrowing rate is 8.5% and theinterest rate implicit in the lease is unknown to Biagio Company. Biagio usesthe straight-line method to depreciate all its assets. The lease requiresannual payments of $60,000, which include $4,000 for taxes and insurance,payable at the beginning of each year starting January 1, 2012 through January1, 2018.
So when I get the present value of minimum lease payment i get $313,826 (This is where I'm a little iffy)
And when i put it into my lease amortization chart the balance ends up negative ant not zero.
Any help is appreciated THANKS!