andhill, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $304152, with the first payment due at…

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andhill, Inc. leased equipment from Tower Company under a 4-year lease requiring equal annual payments of $304152, with the first payment due at lease inception. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 4 year useful life and no salvage value. Sandhill, Inc.’s incremental borrowing rate is 9% and the rate implicit in the lease (which is known by Sandhill, Inc.) is 7%. Assuming that this lease is properly classified as a capital lease, what is the amount of principal reduction recorded when the second lease payment is made in Year 2?


PV Annuity Due


PV Ordinary Annuity

7%, 4 periods3.62432

3.38721

9%, 4 periods3.53129

3.23972

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