Use the information for Lalonde and Costner from BE20–2. Explain, using numbers, how Costner determined the amount of the lease payment of $25,173.

Use the information for Lalonde and Costner from BE20–2. Explain, using numbers, how Costner determined the amount of the lease payment of $25,173.

In BE Lalonde Ltd., a public company following IFRS, recently signed a lease for equipment from Costner Ltd. The lease term is five years and requires equal rental payments of $25,173 at the beginning of each year. The equipment has a fair value at the lease’s inception of $112,400, an estimated useful life of five years, and no residual value. Lalonde pays all executory costs directly to third parties. The appropriate interest rate is 6%. Prepare Lalonde’s journal entries at the inception of the lease.

Using Excel or a financial calculator solve the payment amount:

Excel formula =PMT(rate,nper,pv,fv,type)

Using a financial calculator
PV	$ 112,400
RATE	6%
NPR	5
PMT	?	Yields $25,173
FV	$ 0
Type	1

Using Table A-5 Present Value of an annuity due, 5 periods at 6% of 4.46511, payment = $112,400 / 4.46511= $25,172.95.