Question

Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning 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)		4			7			5			8
Lessor's rate of return		10	%		11	%		9	%		12	%
Fair value of lease asset	$	56,000		$	356,000		$	81,000		$	471,000
Lessor's cost of lease asset	$	56,000		$	356,000		$	51,000		$	471,000
Residual value:
Estimated fair value		0		$	56,000		$	13,000		$	51,000
Guaranteed fair value		0			0		$	13,000		$	56,000

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. (Round your answers to the nearest whole dollar amount.)

Answer 1

Solution:

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