$335,000 a.Determine the amount of the annual lease payments as calculated by th

Question

  

$335,000

a.Determine the amount of the annual lease payments as calculated by the lessor and above situations.

b. Determine the amount lessee would record as a leased asset and a lease liability for above situations.

Situation 1 2 3   Lease term (years) 10    20    5   Lessor’s rate of return (known by lessee) 12% 10% 13%   Lessee’s incremental borrowing rate 13% 11% 12%   Fair value of leased asset $750,000 $1,130,000

$335,000

Required:

a.Determine the amount of the annual lease payments as calculated by the lessor and above situations.

Lease payments Situation 1 Situation 2 Situation 3

b. Determine the amount lessee would record as a leased asset and a lease liability for above situations.

Leased asset / lease liability Situation 1 Situation 2 Situation 3

Explanation / Answer

Situation 1 2 3   Lease term (years) 10    20    5   Lessor’s rate of return (known by lessee) 12% 10% 13%   Lessee’s incremental borrowing rate 13% 11% 12%   Fair value of leased asset $ 750,000 $ 1,130,000 $ 335,000 PVAD 6.32825 9.36492 3.97447 Lease Paymment $ 118,516.18 $ 120,663.07 $ 84,287.97 In Lessee Books Leased assets $ 750,000 $ 1,130,000 $ 335,000 Lease Liability $ 631,483.82 $ 1,009,336.93 $ 250,712.03

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