Lease facts:Date of lease – 6/1/19Term – 3 years (expires 6/1/22)Semi-annual lease payments of $100,000 every 6/1 and 12/1Lessee’s incremental borrowing rate – 6%Lessor’s implicit rate of return – 5% (NOT known to lessee)Lessor’s cost of asset leased - $250,000Guaranteed 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:Assume the lease is treated as a finance lease:Determine the present value of the lease paymentsPrepare an amortization table for the lease payments for the lesseePrepare all of the lessee’s required journal entries for 2019 and 2020Determine the fair value of the lease from the lessor’s perspectivePrepare the lessor’s amortization table for this leasePrepare all of the lessor’s required journal entries for 2019 and 2020

Implicit rate of interest to be taken if it is readily available If not incremental borrowing rate…

Answered: Determine the present value of the…

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Lease facts:

Date of lease – 6/1/19
Term – 3 years (expires 6/1/22)
Semi-annual lease payments of $100,000 every 6/1 and 12/1
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 31^st