On January 1, Ramirez Supply Leased a Car for a Four-Year

Multiple Choice

On January 1, Ramirez Supply leased a car for a four-year period, at which time possession of the car will revert back to the lessor. Annual lease payments are $20,000 due on December 31 of each year, calculated by the lessor using a 5% discount rate. Negotiations led to Ramirez guaranteeing the lessor a $72,000 residual value at the end of the lease term although Ramirez estimates that the residual value after four years will be $70,000. What is the amount to be added to the right-of-use asset and lease payable under the residual value guarantee? (Round your answer to the nearest whole dollar amount.) The present value of $1: n = 4, i = 5% is 0.82270.
The present value of an ordinary annuity of $1: n = 4, i = 5% is 3.54595.
The present value of an annuity due of $1: n = 4, i = 5% is 3.72325.

A) $823
B) $1,216
C) $1,645
D) $2,061