213.8/230 Total A lease agreement that qualifies as a finance lease calls for an

Question

213.8/230 Total A lease agreement that qualifies as a finance lease calls for annual lease payments of $30,000 over a four-year lease term (also the asset's useful life with the first payment at January 1, the beginning of the lease. The interest rate is 8% The lessor's fiscal year is the calendar year. The lessor manufactured this asset at a cost of $100,000. (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.) Required: a. Determine the price at which the lessor is selling" the asset (present value of the lease payments). ts awardedb. Create a partial amortization through the first payment on January 1, 2017. c. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)? Scored Print Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the price at which the lessor is selling the asset (present value of the lease payments). (Round your answers to nearest whole number and round percentage answer to 1 decimal place.) factors based on Table or Calculator PVAD of $1 Lease Payment 30,000 80% 107,313 PV of Lease Required B >

Explanation / Answer

a. The Lessor will recognize the total cost of asset i.e., $100000 as Cost of goods sold

Thus Interest Revenue is $6185

Cost of Goods Sold = $100000

Sales Revenue = $107313

Total Pretax impact on Income = $107313 + $6185 - $100000 = $13498

b. Amount to be recovered through Lease Payments = Amount to be Recovered - Guaranteed Residual Value

Amount to be recovered through Lease Payments = 870000 - 222129

Amount to be recovered through Lease Payments = $647871 (Guaranteed Residual Value should be deducted in Image)

Amount of Fair Value recovered each Lease Payment = $647871 / PVAF(5%, 4)

Amount of Fair Value recovered each Lease Payment = $647871 / 3.54595

Amount of Fair Value recovered each Lease Payment = $182707

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