A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over a six-year lease term (also theasset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 7%. The lessor's fiscal year is thecalendar year. The lessor manufactured this asset at a cost of $191,000.Required:a. Determine the price at which the lessor is "selling" the asset (present value of the lease payments).b. Create a partial amortization table through the second payment on January 1. Year 2c. What would be the increase in earnings that the lessor would report in its income statement for the first year ended December 31(ignore taxes)?Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1)Complete this question by entering your answers in the tabs below.Required ARequired B Required CDetermine the price at which the lessor is "selling the asset (present value of the lease payments).Note: Round your answers to nearest whole number and round percentage answer to 1 decimal place,PV factors based onTable of Calculator functionLease PaymentPV of Leasen=

Paying recurring fees to utilize an asset without really owning it is known as leasing & the…

Answered: A lease agreement that qualifies as a…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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A lease agreement that qualifies as a finance lease calls for annual lease payments of $40,000 over a eight-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 4%. Required: a. Complete the amortization schedule for the first two payments. b. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? 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) Complete this question by entering your answers in the tabs below. Required A Required B Complete the amortization schedule for the first two payments. Note: Enter all amounts as positive values. Round your answers to the nearest whole dollar. Date January 1, Year 1 January 1, Year 1 January 1, Year 2 $ Lease Payment 40,000 $ Effective…
The Harris Company is the lessee on a four-year lease with the following payments at the end of each year: Year 1: Year 2: Year 3: Year 4: $15,500 $20,500 $25,500 $30,500 An appropriate discount rate is 7 percentage, yielding a present value of $76,475. a-1. If the lease is an operating lease, what will be the initial value of the right-of-use asset? Initial value of the right-of-use asset a-2. If the lease is an operating lease, what will be the initial value of the lease liability? Initial value of the lease liability
A lease agreement that qualifies as a finance lease calls for annual lease payments of $25,000 over a six-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Complete the amortization schedule for the first two payments. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? 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)
Terms of a lease agreement and related facts were as follows: a. The lease asset had a retail cash selling price of $100,000. Its useful life was six years with no residual value (straight-line depreciation). b. Annual lease payments at the beginning of each year were $20,873, beginning January 1. c. Lessor's implicit rate when calculating annual rental payments was 10%. d. Costs of $2,062 for legal fees for the lease execution were the responsibility of the lessor. Required: Prepare the appropriate entries for the lessor to record the lease, the initial payment at its beginning, and at the December 31 fiscal year-end under each of the following three independent assumptions: 1. The lease term is three years and the lessor paid $100,000 to acquire the asset (operating lease). 2. The lease term is six years and the lessor paid $100,000 to acquire the asset. Also assume that adjusting the lease receivable (net investment) by initial direct costs reduces the effective rate of interest to…
A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease ferm (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 8%. Required: a. Determine the present value of the lease upon the lease's inception. b. Create a partial amortization table through the second payment on January 1, Year 2. c. If the lessee's fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its Income statement for the first year ended December 31 (ignore taxes)? Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of 51) Complete this question by entering your answers in the tabs below. Required A Required B Required C Determine the present value of the lease upon the lease's inception. Note: Round your answers to nearest whole number and round percentage answer to 1…
Recording Entries for Sales-Type Lease: Lease Payment Calculation Alessor entered into a 5-year lease appropriately classified as a sales-type lease. The cost of the underlying asset was $120,000 and the fair value of the asset was $150,000. The lease included a purchase option that allowed the lessee to purchase the underlying asset for $15,000 at the end of the lease. Because of the discount offered in the purchase option from the expected residual value of $21,000, the lessor is reasonably certain that the lessee will exercise the purchase option. The first lease payment will be made immediately, with annual payments due throughout the lease term. Note: Round each answer to the nearest whole dollar. a. Assuming that the lessor had a desired rate of return of 6%, compute the annual lease payment. 05 b. Assume the same facts (original scenario) except that the exercise of the option is not reasonably certain. Compute the annual lease payment. C. Assume the same facts (original…
ok nt ences A finance lease agreement calls for quarterly lease payments of $7,056 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 12%. Both the present value of the lease payments and the cost of the asset to the lessor are $168,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1? Complete this question by entering your answers in the tabs below. Required A Required B Prepare a partial amortization table up to the October 1 payment. Note: Enter all amounts as positive values. Round your answers to the nearest whole dollar. Date July 1 July 1 October 1 Lease Payment Effective Interest Decrease in Outstanding balance balance Required B >
A lease agreement that qualifies as a finance lease calls for annual lease payments of $36,000 over a four-year lease term (also the asset's useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 5%. Required: Determine the present value of the lease upon the lease's inception. Create a partial amortization table through the second payment on January 1, Year 2. If the lessee's fiscal year is the calendar year, what would be the amounts related to the lease that the lessee would report in its income statement for the first year ended December 31 (ignore taxes)?
The following information relates to Wilson, Inc.’s equipment lease with an inception date of January 1: Fair value of equipment at lease inception, $91,200 Lease term, 4 years Economic life of property, 5 years Implicit interest rate, 6% Annual lease payment due on December 31, $25,600 Present value of the lease payments, $88,707 The equipment reverts back to the lessor at the end of the lease term. How much is interest expense on the lease for the first year? Select one: a. $5,472 b. $2,736 c. $5,322 d. $1,331
A lease agreement that qualifies as a finance lease calls for annual lease payments of $26,269 over a six-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 5% FV of $1 PV of $1 FVA of PVA of $1, FVAD of $1 and PVAD of $t) (Use appropriate factor(s) from the tables provided.) 1 Required: a. Complete the amortization schedule for the first two payments b. If the lessee's fiscal year is the calendar year, what would be the amount of the lease liability that the lessee would report in its balance sheet at the end of the first year? What would be the interest payable? Complete this question by entering your answers in the tabs below. Required A Required B Complete the amortization schedule for the first two payments. (Enter all amounts as positive values.) Lease Payment Effective Interest Decrease in Outstanding Date 01/01/2016 01/01/2016 01/01/2017 Balance Balance Required B >
A active lease involves obligations that are not evenly distributed over the lease period. That the very first year's rent is $14,000, with a total payment of $120,000 throughout the four lease period. Interest expenditure for the first year is $6,000, relating to the current value of the entire lease payments and the implicit interest rate. For the first year, the right-to-use asset should be amortised as follows: Multiple-choice questions $0 $8,000 $20,000 $24,000
2.

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