For each of the three independent situations below determine the amount of the annual lease payments. 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 suffi- ciently lower than the expected fair value that the exercise of the option appears reasonably certain. Situation 2 5 11% $420,000 $420,000 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? 1 5 12% $60,000 $50,000 $10,000 5 yes $ 50,000 5 no 3 4 9% $185,000 $145,000 $ 22,000 3 yes
For each of the three independent situations below determine the amount of the annual lease payments. 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 suffi- ciently lower than the expected fair value that the exercise of the option appears reasonably certain. Situation 2 5 11% $420,000 $420,000 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? 1 5 12% $60,000 $50,000 $10,000 5 yes $ 50,000 5 no 3 4 9% $185,000 $145,000 $ 22,000 3 yes
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
A.4.
Transcribed Image Text:on
5-6
For each of the three independent situations below determine the amount of the annual lease payments. 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 suffi-
ciently lower than the expected fair value that the exercise of the option appears reasonably certain.
Situation
2
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?
1
5
12%
$60,000
$50,000
$10,000
5
yes
5
11%
$420,000
$420,000
$ 50,000
5
no
3
4
9%
$185,000
$145,000
$ 22,000
3
yes
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education