
Concept explainers
A)
Purchase option
Purchase option is provision of certain lease contracts which provides the lessee the option to purchase the leased asset during the period of lease or at the end of the lease term at a particular exercise price.
Capital Lease
This type of lease is a situation whereby the lessor (owner) transfers the ownership of leased asset to the lessee (user) on the maturity period of terms of lease. This is non-cancellable in nature and it extends to long term and can also be capitalized
To Determine: the amounts at the beginning of lease for the lessor at each independent situation.
A)

Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessor | ||||
Lease payments | (1) 700,000 | (2) 750,000 | (3) 800,000 | (4) 840,000 |
Gross investment in the lease |
(5) 700,000 | (6) 750,000 | (7) 850,000 | (8) 900,000 |
Net investment in the lease |
(9) 548,592 | (10) 547,137 | (11) 610,168 | (12) 596,764 |
Table (1)
Working note:
The lease payment is calculated as follows:
The gross investment in lease is calculated as follows:
The net investment in the lease is calculated as follows:
(B)
the amounts at the beginning of lease for the lessee at each independent situation.
(B)

Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessor | ||||
Lease payments | (13) 700,000 | (14) 750,000 | (15) 800,000 | (16) 840,000 |
Right-of-use asset | (17) 548,592 | (18) 547,137 | (19) 586,842 | (20) 572,531 |
Lease payable | (17) 548,592 | (18) 547,137 | (19) 586,842 | (20) 572,531 |
Table (2)
The lease payment is calculated as follows:
The amount to be recorded as right-of-use asset and lease liability is calculated as follows:
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