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Question
1. Five payments of $26,379.74 (a 9% implicit rate) due at the end each year.2. The fair value of the tractor is $100,000.
3. The lease is nonrenewable and the tractor reverts to Star at the end of the lease term.
4. The tractor has a six-year economic life.
5. Hatfield has an excellent credit rating.
6. Star offers no warranty on the tractor other than the manufacturer's two-year warranty that is handled directly with the manufacturer.
Goff Industries has applied for a loan, and as the bank loan officer, you've been assigned to evaluate Goff's financial statements. Your evaluation reveals that Goff has no capital leases recorded on its financial statements while most other companies in its industry do have such leases. To effectively evaluate Goff's financial position and compare it to industry standards, you've decided to constructively capitalize Goff's operating leases. The following information is available from Goff's financial statements for the year ended December 31, 2012: (Round all intermediate calculations to the nearest whole dollar.)
Assuming Goff's long-term debt rate is 10%, what amount would you constructively capitalize in order to effectively analyze Goff's financial position?
A. $ - 0 - since the company has no capital leases.
B. $6,680.
C. $11,504.
D. $3,223.
Answer
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