Calculation of Lease Amounts for Lessor for Manufacturer/dealer Leases with Unguaranteed

question 90

Essay

Calculation of lease amounts for lessor for manufacturer/dealer leases with unguaranteed residual value
Cow Co. is a farming equipment dealer who reports using IFRS. It plans to lease a piece of farming equipment to Horse Inc. and wants to earn a profit on the equipment as well as earn interest. The details of the lease are as follows:
-It will be a 5 year lease and will have annual rental payments due at the beginning of the year.
-The rate of return Cow Co. wants to earn on the equipment is 7%.
-The estimated residual value (unguaranteed) is $ 10,000 (the present value of which is $ 7,130).
-The annual lease payments are $ 55,359 (the present value of which is $ 242,870); and
-The leased equipment has a $ 200,000 cost to the dealer, Cow Co.
Instructions
Calculate the gross investment, unearned interest income, sales revenue, cost of good sold and gross profit for Cow Co.

---

Definitions:

Tension

A force that stretches a material, attempting to elongate it.

Shear

A strain resulting from forces causing parts of a material to slide past each other in opposite directions.

Confining

Pertaining to geological layers or conditions that restrict the flow of groundwater due to lower permeability.

Foliation

The planar arrangement of textural or structural features in metamorphic rocks and certain igneous rocks.