Each of the four independent situations below describes a finance lease in which

Question

Each of the four independent situations below describes a finance lease in which annual lease payments are pay able at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. E 15-24 Calculation of annual lease payments residual value LO15-2, LO15-6 Situation Lease term (years) Lessor's rate of return Fair value of lease asset Lessor's cost of lease asset Residual value: 10% 11% 9% 12% $50,000 $350,000 $75,000 $465,00o $465,000 $50.000 $350,000 $45,000 Estimated fair value Guaranteed fair value o s 50,000$ 7,000 $ 45,000 s 7,000 50,000 Required: For each situation, determine: a. The amount of the annual lease payments as calculated by the lessor. b. The amount the lessee would record as a right-of-use asset and a lease liability.

Explanation / Answer

A) Amount of Annual lease payment will be as follows:

1) Fair value = $50000

Residual value = nil

Lease term = 4years

Value of property to be used is $50000 by 48payments which will be $1042

Total monthly interest cost =$50000/0.00417= $208.5 add this to cover the depreciation of the property $1042 which will be = $1250.5

Annual lease payment will be $1250.5*12= $15006

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