Each of the three independent situations below describes a finance lease in whic

Question

Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required:
a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the amount the lessee would record as a right-of-use asset and a lease liability, for above situations. (Round your answers to nearest whole dollar.)

Situation 1 2 3 Lease term (years) 10 20 5 Lessor's rate of return (known by lessee) 11% 9% 12% Lessee's incremental borrowing rate 12% 10% 11% Fair value of lease asset $690,000 $1,070,000 $285,000

Explanation / Answer

Statement showing claculation of Annual Lease rent payment amount Situation 1 2 3 Fair Vale of Lease Asset $690,000 $1,070,000 $285,000 Lesser Rate of Return 11% 9% 12% Lease Term 10 Year 20 Year 5 Year Cumm PVAF 6.537 9.95 4.037 Annual Lease rent $105,553 $107,538 $70,597 ( Fair Value of Asset/Cumm PVAF)

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