Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
14th Edition
ISBN: 9780133740912
Author: Lawrence J. Gitman, Chad J. Zutter
Publisher: PEARSON
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Chapter 17, Problem 17.7P
Capitalized lease values Given the lease payments, terms remaining until the leases expire, and discount rates shown in the following table, calculate the capitalized value of each lease, assuming that lease payments are made annually at the end of each year.
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What is the proper accounting treatment to record a variable lease payment indexed off the CPI?
Group of answer choices
Record the lease liability based on highest annual increase in the CPI for the past 10 years.
Calculate the lease liability based on the base payment and debit an additional expense in subsequent years based on the change in the CPI.
Calculate the lease liability based on expected payments over the life of the lease after considering increases in the CPI.
Capitalize and depreciate the increased payments based on CPI indexing.
Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end 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 (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
1
Payable
10
10%
11%
$780,000
Situation
2
15
8%
9%
$1,070,000
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.
3
5
11%
10%
$275,000
Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end 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
$
$
$
X Answer is not complete.
Lease
Payments
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.)
4,769,583 X
8,816,264 X
729,076 x
1
12
10%
11%
$700,000
Right-of-use
Asset/Lease Payable
Situation
2
15
8%
9%
$1,030,000
3
4
11%
10%
$235,000
Chapter 17 Solutions
Principles of Managerial Finance, Student Value Edition Plus NEW MyLab Finance with Pearson eText -- Access Card Package (14th Edition)
Ch. 17.1 - Prob. 17.1RQCh. 17.2 - Prob. 1FOECh. 17.2 - What is leasing? Define, compare, and contrast...Ch. 17.2 - Describe the four basic steps involved in the...Ch. 17.2 - What type of lease must be treated as a...Ch. 17.2 - Prob. 17.5RQCh. 17.3 - What is the conversion feature? What is a...Ch. 17.3 - When the market price of the stock rises above the...Ch. 17.3 - Define the straight bond value, conversion (or...Ch. 17.4 - What are stock purchase warrants? What are the...
Ch. 17.4 - Prob. 17.10RQCh. 17.4 - Prob. 17.11RQCh. 17.5 - Prob. 17.12RQCh. 17.5 - How can the firm use currency options to hedge...Ch. 17 - Prob. 17.2STPCh. 17 - N and M Corp, is considering leasing a new machine...Ch. 17 - During the past 2 years Meacham Industries issued...Ch. 17 - Prob. 17.3WUECh. 17 - Prob. 17.4WUECh. 17 - Prob. 17.5WUECh. 17 - Prob. 17.1PCh. 17 - Prob. 17.2PCh. 17 - Loan payments and interest Schuyler Company wishes...Ch. 17 - Prob. 17.4PCh. 17 - Prob. 17.5PCh. 17 - Lease-versus-purchase decision Joanna Browne is...Ch. 17 - Capitalized lease values Given the lease payments,...Ch. 17 - Prob. 17.8PCh. 17 - Conversion ratio What is the conversion ratio for...Ch. 17 - Conversion (or stock) value What is the conversion...Ch. 17 - Prob. 17.11PCh. 17 - Prob. 17.12PCh. 17 - Determining values: Convertible bond Eastern Clock...Ch. 17 - Prob. 17.14PCh. 17 - Prob. 17.18PCh. 17 - Prob. 17.23P
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