Sale and leaseback, annual rental expense.

  • Creator
    Topic
  • April 24, 2016 at 1:19 am #201546
    wjxhahaha
    Participant

    Sale of 10 trucks with a remaining useful life of 8 years. The trucks have a book value of $285,000 and are sold for fair value of $450,000. The 2-year lease qualifies as an operating lease, with monthly rental payments of $8,000 and a present value of $147,000. What is the annual rental expense?

    The answer is: 8000*12-147000/2=22.500

    I don’t understand why…can someone help?

    I know they are taking the difference b/t future value and present value as the rental expense, I just don’t know why. Normally it should be the interest expense.

    I tried to make a JE but can’t figure out the correct one. Can anyone show it?

    DR ??? 73500(147000/2)

    DR rental expense 22500

    CR cash 96000(8000*12)

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