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Date of lease – 7/1/19 Term – 3 years (expires 7/1/22) Semi-annual lease payments of $100,000 every 7/1 and 1/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st

Date of lease – 7/1/19 Term – 3 years (expires 7/1/22) Semi-annual lease payments of $100,000 every 7/1 and 1/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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  • Date of lease – 7/1/19
  • Term – 3 years (expires 7/1/22)
  • Semi-annual lease payments of $100,000 every 7/1 and 1/1
  • Lessee’s incremental borrowing rate – 6%
  • Lessor’s implicit rate of return – 5% (NOT known to lessee)
  • Lessor’s cost of asset leased - $250,000
  • Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000).
  • Lessee and Lessor both have a December 31st

 

Requirements:

 

  1. Assume the lease is treated as a finance lease:
  2. Determine the present value of the lease payments
  3. Prepare an amortization table for the lease payments for the lessee
  4. Determine the fair value of the lease from the lessor’s perspective
  5. Prepare the lessor’s amortization table for this lease

 

 

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