US CMA Part 1 · Chapter 1 · Question 17 of 23
A lessee signs a five-year lease requiring annual payments of $50,000 at the end of each year. The rate implicit in the lease is 6%, and there are no other payments or initial direct costs. What is the initial lease liability (rounded to the nearest dollar)?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: A) $210,618
Explanation
The lease liability is the present value of the payments, an ordinary annuity. PV factor = [1 - 1.06^-5] / 0.06 = 4.2124. Liability = $50,000 x 4.2124 = $210,618 (rounded). Treating the payments as in advance would give $223,255.
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