Each of the four independent situations below describes a finance lease in which

Question

Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: 10% 11% 9 % 12% $56,000 $356,000 $81,000 471,000 $56,000 $356,000 $51,000 $471,000 Estimated fair valu Guaranteed fair value 0 56,000 $13,000 0 $13,000 51,000 56,000 Required a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for above situations. (Round your PV factor answers to 5 decimal places and other answer to nearest whole dollar.) Residual Value Guarantee Right-of-use Asset/Lease Liabilit PV of Lease PV of Residual Lease Payments PaymentsValue Guarantee Situation 1$ Situation 2 Situation 3 Situation 4 16,060 $ 0 0 0 0

Explanation / Answer

1. Situation A) Lease payments :$16060 B) Residual value of Guarantee: $0 C) PV of lease payments -55,999 Payment Beginning of each year Lease term 4 Annual discount rate: 10.00% Year Lease payment Discount factor Present value of lease payment 20X1 0 -16,060 1.000 -16,060 20X2 1 -16,060 0.909 -14,600 20X3 2 -16,060 0.826 -13,273 20X4 3 -16,060 0.751 -12,066 -55,999 D) Present value of Residual value: 0 E) Right to use of asset/ lease liability: $55,999 Payment Beginning of each year Lease term 4 Annual discount rate: 10.00% Year Lease payment Discount factor Present value of lease payment 20X1 0 -16,060 1.000 -16,060 20X2 1 -16,060 0.909 -14,600 20X3 2 -16,060 0.826 -13,273 20X4 3 -16,060 0.751 -12,066 -55,999

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