Question:
On March 31, 2013, Southwest Gas leased equipment from a supplier and agreed to pay $200,000
annually for 20 years beginning March 31, 2014. Generally accepted accounting principles require that a
liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at
inception of the lease, Southwest recorded a $2,293,984 lease liability.
Required:
Determine the interest rate implicit in the lease agreement.
Answer:
PVA factor = $2,293,984 = 11.46992
$200,000
Present value of an ordinary annuity of $1: n = 20, i = ? (from Table 4, i = 6%)
On March 31, 2013, Southwest Gas leased equipment from a supplier and agreed to pay $200,000
annually for 20 years beginning March 31, 2014. Generally accepted accounting principles require that a
liability be recorded for this lease agreement for the present value of scheduled payments. Accordingly, at
inception of the lease, Southwest recorded a $2,293,984 lease liability.
Required:
Determine the interest rate implicit in the lease agreement.
Answer:
PVA factor = $2,293,984 = 11.46992
$200,000
Present value of an ordinary annuity of $1: n = 20, i = ? (from Table 4, i = 6%)
