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On Jan 1,2014, A-One Equipment Company leased a piece of construction equipment to Peaks Construction, Inc. The equipment had cost A-One Equipment...

On Jan 1,2014, A-One Equipment Company leased a piece of construction equipment to Peaks Construction, Inc. The equipment had cost A-One Equipment $400,000 to manufacture. Terms of the lease agreement and other information are as follows:

Term of lease 12 years; Normal selling price of equipment $500,000; Estimated residual value at end of lease term ($300,000 of which is guaranteed by the lessee); Annual lease payments, at the end of each years, starting 12/31/14 ???(doesn't give this number); Lessor's rate implicit in the lease (known by the lessee) 7.0%; Lessee's incremental borrowing rate 6.5%;

This lease is appropriately classified as a sales-type lease by A-One equipment and a capital lease by Peaks Construction.
Required:
1.Amount to be recovered through periodic payments
2.Periodic rental payments
3.Lessee's present value of minimum lease payments
4.Lessor's present value of minimum lease payments
5.Plus present value of unguaranteed residual value
6.Equals Lessor's net investment in lease (=fair value)
7.Lessee's amortization schedule (12 years)
8.Lessor's amortization schedule (12 years)
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8527898.docx

Answer
1. Amount to be recovered through periodic payments
Amount to be recovered
= $500,000
Less present value of the guaranteed (300000*.469683) = $140,905
Amount to be recovered through lease...

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