Question

Glade Co. leases computer equipment to customers under sales-type leases. The equipment has no residual value at the end of the lease, and the leases do not contain purchase options. At lease inception, the fair value of the leased computer equipment equals its carrying amount. Glade wishes to earn 8% interest on a 5-year lease of equipment with a fair value of $323,400. The present value of an annuity due of $1 at 8% for 5 years is 4.312. What is the total amount of interest revenue that Glade will earn over the life of the lease

Answer 1

Answer:

$51,600

Explanation:

Calculation to determine the total amount of interest revenue that Glade will earn over the life of the lease

Using this formula

Total interest = lease of equipment years *(Lease equipment fair value/ Present value of annuity due) -Lease equipment fair value

Let plug in the formula

Total interest=5* ($323,400/4.312)- $323,400

Total interest=5*$75,000-$323,400

Total interest=$375,000-$323,400

Total interest= $51,600

Therefore the total amount of interest revenue that Glade will earn over the life of the lease is $51,600