Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $19,000 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)		12	%		12	%		12	%		12	%
Residual value:
Guaranteed by lessee		0		$	7,600		$	3,800			0
Unguaranteed		0			0		$	3,800		$	7,600
Purchase option:
After (years)		none			3			4			3
Exercise price		n/a		$	8,800		$	2,800		$	4,800
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.)

Answer 1

		Situation
	1	2	3	4
The lessor’s
Total lease payments	$     76,000	$     76,000	$     76,000	$     61,800
Gross investment in the lessee	$     76,000	$     83,600	$     83,600	$     61,800
Net investment in the lease	$     64,635	$     69,465	$     69,465	$     54,528
The lessee’s:
Total lease payments	$     76,000	$     76,000	$     76,000	$     61,800
Right to use Assets	$     64,635	$     64,635	$     64,635	$     54,528
Lease liability	$     64,635	$     64,635	$     64,635	$     54,528