Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $10,000 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)		4			4			4			4
Asset’s useful life (years)		4			5			5			7
Lessor’s implicit rate (known by lessee)		11	%		11	%		11	%		11	%
Residual value:
Guaranteed by lessee		0		$	4,000		$	2,000			0
Unguaranteed		0			0		$	2,000		$	4,000
Purchase option:
After (years)		none			3			4			3
Exercise price		n/a		$	7,000		$	1,000		$	3,000
Reasonably certain?		n/a			no			no			yes

  
Determine the following amounts at the beginning of the lease (Round your final answers to nearest whole dollar.):

	Situation 1 2 3 4 A. The lessor’s: 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease B. The lessee’s: 4. Lease payments 5. Right-of-use asset 6. Lease payable

Answer 1