On December 31, 2019, Marin Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Marin to make annual payments of $8,566 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Marin uses the straight-line method of depreciation for all of its plant assets. Marin's incremental borrowing rate is 7%, and the lessor's implicit rate is unknown.

What type of lease is this?

Compute the present value of lease

Question

Business

Diana Whitney

10 December, 12:12

On December 31, 2019, Marin Corporation signed a 5-year, non-cancelable lease for a machine. The terms of the lease called for Marin to make annual payments of $8,566 at the beginning of each year, starting December 31, 2019. The machine has an estimated useful life of 6 years and a $4,500 unguaranteed residual value. The machine reverts back to the lessor at the end of the lease term. Marin uses the straight-line method of depreciation for all of its plant assets. Marin's incremental borrowing rate is 7%, and the lessor's implicit rate is unknown.

What type of lease is this?

Compute the present value of lease

+4

Answers (1)

Know the Answer?

Rory Harmon · Answer 1

The answer is given below;

Explanation:

This is operating lease as the machine will revert back to lessor at the end of lease term.

Present value of lease=R (1 - (1+i) ^-n) / i

where R=8,566

i=7%

n=5 year

P=8,566 (1 - (1+) ^-5) /.07

P=8,566*4.10=$35,122