Each of the four independent situations below describes a sales-type lease in wh
ID: 2545149 • Letter: E
Question
Each of the four independent situations below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of the lease.
The lessor’s:
Lease payments
Gross investment in the lease
Net investment in the lease
The lessee’s:
Lease payments
Right-of-use asset
Lease liability
Situation
1
2
3
4
Lease term (years)
4
4
4
4
Asset’s useful life (years)
4
5
5
7
Lessor’s implicit rate (known by lessee)
11%
11%
11%
11%
Residual value:
Guaranteed by lessee
0
$4,000
$2,000
0
Unguaranteed
0
0
$2,000
$4,000
Purchase option:
After (years)
none
3
4
3
Exercise price
n/a
$7,000
$1,000
$3,000
Reasonably certain?
n/a
no
no
yes
Situation
1
2
3
4
Lease term (years)
4
4
4
4
Asset’s useful life (years)
4
5
5
7
Lessor’s implicit rate (known by lessee)
11%
11%
11%
11%
Residual value:
Guaranteed by lessee
0
$4,000
$2,000
0
Unguaranteed
0
0
$2,000
$4,000
Purchase option:
After (years)
none
3
4
3
Exercise price
n/a
$7,000
$1,000
$3,000
Reasonably certain?
n/a
no
no
yes
Explanation / Answer
For situation 4, since the repurchase option will be excercises at end of year 3, the term of lease is 3 years and residual value will be the option's excercise price.
Siuation 1: Formula Amount Lessor's 1. Lease payments =100000*4 400,000.00 2. Gross investment in the lease =100000*4 400,000.00 3. Net investment in the lease =100000*PVAF(11%,4 years) = 110000*3.4437 378,807.00 Lessee's 1. Lease Payments =100000*4 400,000.00 2. Right-of-use assets =100000*PVAF(11%,4 years) = 110000*3.4437 378,807.00 3. Lease Liability =100000*PVAF(11%,4 years) = 110000*3.4437 378,807.00Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.