G Exercise 15-28 (Static) Calculation of annual lease payments; purchase option [LO15-2, 15-6]Three independent situations are given. Each describes a finance lease in which annual lease payments are payable at the beginningof each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that issufficiently lower than the expected fair value that the exercise of the option appears reasonably certain.Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1)Lease term (years)Lessor's rate of returnFair value of leased assetLessor's cost of leased assetPurchase option:Exercise priceExercisable at end of year:Reasonably certain?Situation 1Situation 2Situation 3Annual LeasePayments14512%$ 60,000$ 50,000$ 10,0005yesSituation511%$ 420,000$ 420,000$ 50,0005noDetermine the annual lease payments for each situation:Note: Round your intermediate and final answers to the nearest whole dollar amount.9%$ 185,000$ 145,000$ 22,000yes

A lease is an agreement between two parties under which the owner of asset allows the other party to…

Answered: Determine the annual lease payments for…

Determine the annual lease payments for each situation: Note: Round your intermediate and final answers to the nearest whole dollar amount. Situation 1 Situation 2 Situation 3 Annual Lease Payments 4

FINANCIAL ACCOUNTING

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Problem 1Q

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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Exercise 15-28 (Static) Calculation of annual lease payments; purchase option [LO15-2, 15-6]
Three independent situations are given. Each describes a finance lease in which annual lease payments are payable at the beginning
of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is
sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain.
Note: Use tables, Excel, or a financial calculator. (FV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1)
Lease term (years)
Lessor's rate of return
Fair value of leased asset
Lessor's cost of leased asset
Purchase option:
Exercise price
Exercisable at end of year:
Reasonably certain?
Situation 1
Situation 2
Situation 3
Annual Lease
Payments
1
4
5
12%
$ 60,000
$ 50,000
$ 10,000
5
yes
Situation
5
11%
$ 420,000
$ 420,000
$ 50,000
5
no
Determine the annual lease payments for each situation:
Note: Round your intermediate and final answers to the nearest whole dollar amount.
9%
$ 185,000
$ 145,000
$ 22,000
yes

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