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Chapter 5: Q21BP-a (page 531)

The Ellis Corporation has heavy lease commitments. Prior to SFAS No. 13, it merely footnoted lease obligations in the balance sheet, which appeared as follows:

The footnotes stated that the company had $14 million in annual capital lease obligations for the next 20 years.

a. Discount these annual lease obligations back to the present at a 10 percent discount rate (round to the nearest million dollars).

Short Answer

Expert verified

The present value of lease payments is $86,024,000.

Step by step solution

01

Information provided in question

Annual capital lease obligations = 14,000,000

Lease period = 20 years

Discount rate = 10%

02

Calculation of present value of the lease obligations

The present value of lease payments is $86,024,000.

PV of lease payments=Annual lease payments脳PVFAi=10%,n=10years=$14,000,000脳6.1446=$86,024,000

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