On January 1, year 9 SaniTruck, Inc. leases two specialized materials cleanup trucks with a fair value of $79,205 from TruxCo., a financing intermediary, for a lease term of 7 years. TruxCo. includes an ongoing maintenance contract, charged at $3,000 per year, as part of the lease payments of $20,000 per year, payable on January 1 each year starting in year 9. Also included in the payments is legally required hazard insurance of $1,500 per year. Assuming that SaniTruck wishes to minimize the amount of lease payable recorded, at what amount should SaniTruck initially record a right-of-use asset at the beginning of the lease

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18 April, 12:53

On January 1, year 9 SaniTruck, Inc. leases two specialized materials cleanup trucks with a fair value of $79,205 from TruxCo., a financing intermediary, for a lease term of 7 years. TruxCo. includes an ongoing maintenance contract, charged at $3,000 per year, as part of the lease payments of $20,000 per year, payable on January 1 each year starting in year 9. Also included in the payments is legally required hazard insurance of $1,500 per year. Assuming that SaniTruck wishes to minimize the amount of lease payable recorded, at what amount should SaniTruck initially record a right-of-use asset at the beginning of the lease

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Ruth Jimenez · Answer 1

The $86,870 is correct answer.

Explanation:

Annual payments for finance lease = 20000-3000 = $17000

Annual payments 17000

X Present value factor of annuity due (12%) 5.11

Right - of-use asset = 17000 * 5.11 = 86870

$86,870 is correct