Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $145,000 are payable at the beginning of each year. Each is a finance lease for the lessee. (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.)

	Situation
	1	2	3	4
Lease term (years)	6	6	7	7
Lessor's and lessee's interest rate	11%	10%	12%	12%
Residual value:
Estimated fair value	0	$59,000	$8,900	$59,000
Guaranteed by lessee	0	0	$8,900	$69,000

Determine the following amounts at the beginning of the lease: (Round your intermediate and final answer to the nearest whole dollar amount.)

Situation
		1	2	3	4
A	The lessor’s:
	1. Total lease payments	$870,000selected answer correct	$870,000selected answer correct	$1,015,000selected answer correct	$1,015,000selected answer correct
	2. Gross investment in the lease	870,000selected answer correct	929,000selected answer correct	1,032,800selected answer incorrect	1,143,000selected answer incorrect
	3. Net investment in the lease	680,906selected answer correct	776,514selected answer incorrect	805,193selected answer incorrect	799,054selected answer incorrect
B	The lessee’s:
	4. Total lease payments	870,000selected answer correct	870,000selected answer correct	1,023,900selected answer incorrect	1,084,000selected answer incorrect
	5. Right-of-use asset	680,906selected answer correct	694,666selected answer correct	800,325selected answer incorrect	772,365selected answer incorrect
	6. Lease liability	680,906selected answer correct	694,666selected answer correct	800,325selected answer incorrect	772,365

Answer 1

This the best solution i could get:-

Situation 1

Lease payments = (1,45,000*6) = 8,70,000

Gross investment in the lease = (1,45,000*6) = 8,70,000

Net investment in the lease = 1,45,000*4.69590= 6,80,906

Right-of-use asset = 1,45,000*4.69590= 6,80,906

Lease payable = 1,45,000*4.69590= 6,80,906

Present value annuity due factor of $1 @ n= 6 , i=11% = 4.69590

Situation 2

Lease payments = (1,45,000*6) = 8,70,000

Gross investment in the lease = (1,45,000*6) + 59,000 = 9,29,000

Net investment in the lease = (1,45,000*4.51723)+ (59,000*0.48032) = 6,83,337

Right-of-use asset = 1,45,000*4.51723= 6,54,998

Lease payable = 1,45,000*4.51723= 6,54,998

Present value annuity due factor of $1 @ n= 6 , i=13% = 4.51723

Present value factor of $1 @ n= 6 , i=13% = 0.48032

Situation 3

Lease payments = (1,45,000*7)+8,900 = 10,23,900

Gross investment in the lease = (1,45,000*7)+8,900+8,900 = 10,32,800

Net investment in the lease = (1,45,000*5.11141)+(17,800*0.45235)

= 7,49,206

Right-of-use asset = (145,000*5.11141)+(8,900*0.45235)

= 7,45,180

Lease payable = (1,45,000*5.11141)+(8,900*0.45235)

= 7,45,180

Present value annuity due factor of $1 @ n= 7 , i=12% = 5.11141

Present value factor of $1 @ n= 7 , i=12% = 0.45235

Situation 4

Lease payments = (1,45,000*7)+69,000 = 10,84,000

Gross investment in the lease = (1,45,000*7)+69,000 +59,000

= 11,43,000

Net investment in the lease = (1,45,000*5.11141)+(1,28,000*0.45235)= 7,99,055

Right-of-use asset = (1,45,000*5.11141)+(69,000*0.45235)= 7,72,367

Lease payable = (1,45,000*5.11141)+(69,000*0.45235) = 7,72,367

Present value annuity due factor of $1 @ n= 7 , i=12% = 5.11141

Present value factor of $1 @ n= 7 , i=12% = 0.45235