Each of the four independent situations below describes a sales-type lease in wh

Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $190,000 are payable at the beginning of each year. Each is a finance lease for the lessee (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 and lessee's interest rate Residual value: 10% 12% 11% 11% Estimated fair value Guaranteed by lessee $68,000 9,800 $68,000 $9,800 $78,000 Determine the following amounts at the beginning of the lease (Round your intermediate and final answer to the nearest whole dollar amount.) Situation 2 A The lessor's: 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease B The lessee's 4. Lease payments 5. Right-of-use asset 6. Lease payable

Explanation / Answer

Answer: The following amounts would be at the beginning of the lease Situation 1 2 3 4 A The lessor's : 1. Lease payments 1330000 1398000 1529800 1588000 =190000*7 =190000*7+68000 =190000*8+9800 =190000*8+68000 2. Gross investment in the lease 1330000 1398000 1539600 1666000 =1330,000+0 =1398,000+0 1529,800+9,800 =1,588,000+78,000 3. Net investment in the lease 10,17,499.53 10,01,927.14 10,93,822.25 11,48,670.56 =PV(10%,7,-190000,0,1) =PV(12%,7,-190000,-68000,1) =PV(11%,8,-190000,-19600,1) =PV(11%,8,-190000,-146000,1) B The lessee's: 4. Lease payments 1330000 1398000 1529800 1588000 =190000*7 =190000*7+68000 =190000*8+9800 =190000*8+68000 5. Right-of-use asset 10,17,499.53 10,01,927.14 10,89,569.77 11,14,824.29 =PV(10%,7,-190000,0,1) =PV(12%,7,-190000,-68000,1) =PV(11%,8,-190000,-9800,1) =PV(11%,8,-190000,-68000,1) 6. Lease payable 10,17,499.53 10,01,927.14 10,89,569.77 11,14,824.29 =PV(10%,7,-190000,0,1) =PV(12%,7,-190000,-68000,1) =PV(11%,8,-190000,-9800,1) =PV(11%,8,-190000,-68000,1) Work Note: 1. Lease payments Annual payment*Number of years+ Estimated fair Value 2. Gross investment in the lease Minimum Lease Payment + Guaranteed by lessee 3. Net investment in the lease Present value of (annual lease payment + Estimated fair Value + Guaranteed of lessee) 4. Lease payments Annual payment*Number of years+ Estimated fair Value 5. Right-of-use asset Present value of (annual lease payment + Estimated fair Value) 6. Lease payable Present value of (annual lease payment + Estimated fair Value)

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