Western Governors University (WGU) ACCT3650 D105 Intermediate Accounting III Practice Exam

To determine the present value of the lease for Company A, including the purchase option for computers, it’s essential to understand the concepts of lease accounting and present value calculations.

The present value of a lease incorporates the total expected cash flows associated with the lease, discounted back to their present value at an appropriate interest rate. In this scenario, the purchase option likely represents an additional cash flow at the end of the lease term, which must also be included in the present value calculations.

To arrive at the correct answer, factors including the lease payments, interest rates, and the timing of cash flows would have been evaluated. The calculation involves using the present value formula, where future cash flows are multiplied by the present value factor derived from the interest rate.

In this case, $12,689 as the present value reflects the correct calculations based on the lease agreement specifics, including all relevant cash flows over the life of the lease and the expected value at the end of the lease when the purchase option might be exercised. This option would entail paying a set amount to purchase the computers after the lease term, and its value must be discounted to determine its present value correctly.

Calculating present value accurately takes into account all aspects of the lease, which results in choosing this