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

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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