Each of the four 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.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Situation
Lease term (years)
Lessor's rate of return
Fair value of lease asset
Lessor's cost of lease asset
Residual value:
Estimated fair value
Guaranteed fair value
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 each of the above situations.
Note: Round your answers to the nearest whole dollar amount.
Lease Payments
Residual Value
Guarantee
PV of Lease
Payments
PV of Residual
Value Guarantee
Right-of-use
Asset/Lease
Liability
Situation 1
Situation 2
Situation 3
Situation 4
1
4
10%
$ 66,000
$ 66,000
0
0
2
7
11%
$ 366,000
$ 366,000
$ 66,000
0
3
5
9%
$ 91,000
$ 61,000
$ 23,000
$ 23,000
4
8
12%
$ 481,000
$ 481,000
$ 35,000
$ 40,000
