omework Chapter 15 6 Saved Help Save & Exit Su Check my wo tach or the three ind
ID: 2513971 • Letter: O
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omework Chapter 15 6 Saved Help Save & Exit Su Check my wo tach or the three independent situations beiow describes a Tinance iease in which annual lease payments are payapi 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 (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset 10 11% 12% 2 2e 9% 10% 12% 11% $790,eee $1,17e,eee $375,eee Book Hint Print erences 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 answers to nearest whole dollar.) ease Payments Right-of-use Asset/Lease Payable Situation 1 Situation 2 Situation 3 Prey 3 of 4 Next>Explanation / Answer
a & b) Calculation of Annual lease payments and value of right of use asset in each situation
Situation 1
Annual Lease payment = Fair Value of Asset/PVAF for beginning of period payments at 11%
= $790,000/PVAF(11%, 10 yrs)
= $790,000/6.53705 = $120,850
Lease Liability for lessee will also be calculated by using lessor's implicit rate of return as it is aware by the lessee.
Lease Liability = Annual Lease Payments*PVAF(11%, 10 yrs)
= $120,850*6.53705 = $790,002
Situation 2
Annual Lease payment = Fair Value of Asset/PVAF for beginning of period payments at 9%
= $1,170,000/PVAF(9%, 20 yrs)
= $1,170,000/9.95011 = $117,587
Lease Liability for lessee will also be calculated by using lessor's implicit rate of return as it is aware by the lessee.
Lease Liability = Annual Lease Payments*PVAF(9%, 20 yrs)
= $117,587*9.95011 = $1,170,004
Situation 3
Annual Lease payment = Fair Value of Asset/PVAF for beginning of period payments at 12%
= $375,000/PVAF(12%, 6 yrs)
= $375,000/4.60478 = $81,437
Lease Liability = Annual Lease Payments*PVAF(12%, 6 yrs)
= $81,437*4.60478 = $374,999
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