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# leased a color copier from compudec corporation at a

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Unformatted text preview: cifies annual payments beginning January 1, 2011, the inception of the lease, and at each December 31 there after through 2015. The estimated useful life of the copier is seven years. On December 31, 2016, at the end of the six year lease term, the copier is expected to be worth \$75,000, and Sans Serif has the option to purchase it for \$60,000 on that date. The residual value after seven years is zero. CompuDec manufactured the copier at a cost of \$300,000 and its interest rate for financing the transaction is10%. 15-30 Slide 31 Bargain Purchase Option (BPO) Lessor's calculation of rental payments: Fair market value of asset \$ 479,079 Less: PV of BPO \$ 60,000 × 0.56447 = (33,868) Amount recoverd through payments \$ 445,211 PV annuity due factor, n = 6, I = 10% ÷ 4.79079 Rental payments at beginning of period \$ 92,931 Lessee's calculation of PV of MLP: PV of periodic payments \$ 92,931 × Plus: PV of BPO 60,000 × PV of MLP 4.79079 = \$ 445,211 0.56447 = 33,868 \$ 479,079 15-31 Slide 32 Bargain Purchase Option (BPO) Date 1/1/11 1/1/11 12/31/11 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 Payment \$ 92,931 92,931 92,931 92,931 92,931 92,931 60,000 \$ 617,586 Effective Interest \$ Decrease in Balance \$ 92,931 38,615 54,316 33,183 59,748 27,208 65,723 20,636 72,295 13,407 79,524 5,458 * 54,542 \$ 138,507 \$ 479,079 Outstanding Balance \$ 479,079 386,148 331,832 272,084 206,361 134,067 54,542 - Exercise of BPO at the end of the lease term: Effective interest = \$54,542 × 10% = \$5,458* (adjusted) Decrease in balance: \$60,000 BPO payment - \$5,458 = \$54,542 \$54,542 15-32 Slide 33 Bargain Purchase Option (BPO) End of Lease – December 31, 2016 Sans Serif Publishers, Inc. (Lessee) Sans Serif Publishers, Inc. (Lessee) Depreciation expense (\$479,079 ÷ 7) Depreciation expense (\$479,079 ÷ 7) Accumulated depreciation Accumulated depreciation Interest expense Interest expense Lease payable Lease payable Cash (BPO payment) Cash (BPO payment) CompDec Corporation (Lessor) CompDec Corporation (Lessor) Cash Cash Lease receivable Lease receivable Interest revenue Interest revenue 68,440 68,440 5,458 5,458 54,542 54,542 60,000 60,000 68,440 68,440 60,000 60,000 54,582 54,582 5,458 5,458 Refer to the amortization schedule and Refer to the amortization schedule and computations on the previous screen computations on the previous screen 15-33 Slide 34 Residual Value The residual value of a leased asset is an The estimate of what its commercial value will commercial be at the end of...
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