Complete Question

The lease payments from footnote disclosures of an operating lease Year Lease payments ($) 1. 2. 3. Year 4 and after 1,375 1,210 825 4,125 Assume a discount rate of 8%.

Required:

a. Calculate the Pv of all the lease payments.

b. Assume a 10% discount rate and a tax rate of 25%, so that the Pv of all the lease payments is $5,220.

Complete the I/S figures Income Statement Effects

As Reported Adjustment Adjusted

NO PAT $1,500 - -

INT(1-tax rate) 475 - -

NI $1,025 - -

Answer:

Explanation:

from the question

from the question

present value of all lease payment

year lease payment

1 $1373

2 $1210

3 $ 825

4 and after $4125

To get or derive the of the lease payment after year 4 i.e future lease payment

=

=

present value of all lease payment

year lease payment present value at 8%

1 $1375 $1273

2 $1210 $1037

3 $835 $654

4 $4125 $3032

$51562.5 $37899

Total $43895

calculation for PV

year

1 0.9259 × 1375

2 0.8573 × 1210

3 0.7938 × 835

4 0.7350 × 4125

after 0.7350 × 51562.5

As reported adjustment Adjusted

NO PAT $1500 $0 $ 1500

INT ( 1-Tax rate) $ 475 $392 $ 867

NI $1025 $0 $ 634

Calculation of adjustment and adjusted

adjustment adjusted

NO PAT $1500 + $0

INT (1-TAX RATE] 5220×0.10×(1 -0.25) $475 + $392

NI $1500 - $867