Question

For each of the following four separate finance leases scenarios, determine the lease payment that the lessee should use to determine the appropriate lease classification.

a. Lease payments are $3,000 per month plus 5% of lessee net sales. Lessee sales for year one are estimated to be $100,000.

b. Lease payments are computed as the greater of (a) 5% of lessee net sales or (b) $3,000. Lessee sales for year one are estimated to be $100,000.

c. Annual lease payments are 10% of lessee annual sales, with no fixed portion. Lessee sales for year one are estimated to be $100,000.

d. Lease payments total $5,000 in year one and increase each year based on the annual increase in the CPI at the end of the preceding year. The CPI at the end of the current year is expected to be 2%.

Answer 1

a. Total Annual Lease payments $3000 X 12 = $36000(Because Net Sales are gien for full year so lease payments will also consider for full year

Plus:- 5% of lessee sales 5% of $100000 = $ 5000

Total Lease Payment= $36000+ $5000 = $41000

b. Lease Payments are Computed on the basis of that amount which is greater from the given two options:

First Option : 5% of Lessee Net Sales= 5% of $100000 = $5000

Second Option: $3000

Thus Now First Option is Greater so that will be lease Payent $5000

c. Annual Lease Payments = 10% of Annual Lease Sales

                                        = 10% of $100000

                                        = $10000

d. Lease Payment in a Year= $ 5000

CPI of The Current year expected to Increase to 2%

Lease Payment = $5000 + 2% of $5000

                       = $5000 + $100

                       = $5100