Business, 16.04.2020 21:58 megansanders215

The lease agreement specifies annual payments of $11,000, including $1,000 maintenance fee, beginning December 31st, and at each December 31 through 2024. The interst rate for determining payments was 10%. At the end of the four-year lease term (December 31, 2025), the truck was expected to be worth $15,000. The useful life of the truck is five years with no salvage value. The company uses straight-line method. In addition, the guaranteed residual value was $6,000. The estimated useful life of the truck is four years. Mid-South Auto Leasing's quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $21,000 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows' incremental interest rate is 12%.

Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (i. e., a BPO). (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease.

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