Each of the three 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. (FV of $1, PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 2 20 10 11% 9% 12% 10% $780,000 $1,160,000 3 6 12% 11% $365,000
Each of the three 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. (FV of $1, PV of $1. FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 2 20 10 11% 9% 12% 10% $780,000 $1,160,000 3 6 12% 11% $365,000
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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Transcribed Image Text:Each of the three 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. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1
and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Lease term (years)
Lessor's rate of return (known by lessee)
Lessee's incremental borrowing rate
Fair value of lease asset.
Situation 1
Situation 2
Situation 3
Lease Payments
Right-of-use Asset/Lease
Situation
2
20
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. (Round your answers to the nearest whole dollar.)
Payable
1
10
11%
12%
$780,000 $1,160,000
9%
10%
3
6
12%
11%
$365,000
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