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	870,000	870,000	1,015,000
	2. Gross investment in the lease	870,000	929,000
	3. Net investment in the lease	680,906
B.	The lessee's
	4. Total lease payments	870,000	870,000	1,015,000	1,025,000
	5. Right-of-use asset	680,906	694,665	741,155
	6. Lease liability	680,906	694,665	741,155

Answer 1

Solution:

Formula:

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