Lessee ABC INC.leased from Lessor QRS a machine that cost $35,000, which was properly classified as a finance lease by both parties.Assume the lessor used a 12 percent implicit interest rate and that the lessee was informed of that rate.The lease did not include a bargain purchase option and the estimated residual value at termination of the lease was zero.Equal semi-annual lease payments are to be made at the start of each such period, including one on the date the lease was signed.The amount of each semi-annual payment, assuming a five-year lease term, would be:
A)$9,709
B)$2,074
C)$2,916
D)$4,755
E)$4,486

Question

Quizplus · Accepted Answer

The semi-annual payment can be calculated using the present value of annuity formula for a finance lease. Given the cost of $35,000, a 12% annual interest rate (6% semi-annual), and a 5-year term (10 periods), the payment is approximately $4,486.