Calculation of unknown rent and interest

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Calculation of unknown rent and interest.

Pine Leasing Company purchased specialized equipment from Wayne Company on December 31, 2013 for $800,000. On the same date, it leased this equipment to Sears Company for 5 years, the useful life of the equipment. The lease payments begin January 1, 2014 and are made every 6 months until July 1, 2018. Pine Leasing wants to earn 10% annually on its investment.

Various Factors at 10%

           Periods               Future               Present        Future Value of an      Present Value of an

          or Rents          Value of $1       Value of $1     Ordinary Annuity        Ordinary Annuity

                9                 2.35795               .42410               13.57948                      5.75902

              10                 2.59374               .38554               15.93742                      6.14457

              11                 2.85312               .35049               18.53117                      6.49506

Various Factors at 5%

           Periods               Future               Present        Future Value of an      Present Value of an

          or Rents          Value of $1       Value of $1     Ordinary Annuity        Ordinary Annuity

                9                 1.55133             .64461               11.02656                       7.10782

              10                 1.62889             .61391               12.57789                       7.72173

              11                 1.71034             .58468               14.20679                       8.30641

Instructions

(a) Calculate the amount of each rent.

(b) How much interest revenue will Pine earn in 2014?