E connect ACCOUNTING Ch. 15 Test 10 10.00 points Exercise 15-16 Calculation of a

Question

E connect ACCOUNTING Ch. 15 Test 10 10.00 points Exercise 15-16 Calculation of annual lease payments; BPO [L015-5, 15-6, 15-7 For each of the three independent situations below determine the amount of the annual lease payments Each describes a capital lease in which annual lease payrments are payable at the beginning of each year Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (EV of $1. PV of $1. EVA of $1, PVA of $1. EVAD of $1 and PVAD of S1) (Use appropriate factor's) from the tables provided.) Lease term (years) Lessor's rate of return Fair value of leased asset Lessors cost of leased asset Bargain purchase option 10 11% $94,000 $437.000 $202,000 $67,000 $437,000 $162,000 Option pricE Exercisable al end of year $27,000 67,000 39,000 Detemire the annual lease payments for each situstian Stuation 1 Stuation 3 TOSHIBA esc 2 3 4 5 tab 9

Explanation / Answer

Situation 1 2 3 Lease Term ( Year) 5 10 4 Lessor rate of Return 11% 12% 10% a Annual Lease Payment x x x b. Cumm PVF @ r, rate, n 4.101 6.328 3.487 a*b Cummulative Lease Payment (in N period) 4.101x 6.328x 3.487x c Purchase Option Price at the end of period $27,000.00 $67,000.00 $39,000.00 d PV @ r, n 0.593 0.386 0.683 e=c*d PV of Purchase Option Price $16,011.00 $25,862.00 $26,637.00 f Fair Value of Leased Asset $94,000.00 $437,000.00 $202,000.00 g= f-e Fair Value of Lease Asset after adjusting Purchase optin at the end of period $77,989.00 $411,138.00 $175,363.00 Annual Lease Payment $19,020.00 $64,971.00 $50,290.00 =77983/4.101 =411138/6.328 =175363/3.487

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