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) 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 Situation 1 Situation 2 Situation 3 Situation 4 4 10% Lease Payments $ 66,000 $ 66,000 0 0 2 Situation 7 11% $366,000 $366,000 Residual Value PV of Lease Guarantee Payments $ 66,000 0 3 5 9% $ 91,000 $ 61,000 $ 23,000 $ 23,000 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. PV of Residual Value Guarantee 8 12% $ 481,000 $ 481,000 $ 35,000 $ 40,000 Right-of-use Asset/Lease Liability

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) 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 Situation 1 Situation 2 Situation 3 Situation 4 4 10% Lease Payments $ 66,000 $ 66,000 0 0 2 Situation 7 11% $366,000 $366,000 Residual Value PV of Lease Guarantee Payments $ 66,000 0 3 5 9% $ 91,000 $ 61,000 $ 23,000 $ 23,000 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. PV of Residual Value Guarantee 8 12% $ 481,000 $ 481,000 $ 35,000 $ 40,000 Right-of-use Asset/Lease Liability

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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