Question

In: Accounting

Lease type: Finance lease. Annual lease payments: $100,000 are payable at the beginning of each year....

Lease type: Finance lease. Annual lease payments: $100,000 are payable at the beginning of each year. Lease term: 8 years. Lessor’s and lessee’s interest rate: 12%. Guaranteed residual value by the lessee: $60,000. Estimated residual value at the end of the lease term: $40,000.

Determine the lessee’s Right-of-Use Asset.

a.

580,609
b.

None of the answers.
c.

0
d.

560,415
e.

564,454

Solutions

Expert Solution

Right of Use Asset = Present value of lease payment + Present value of Guranteed residual value.
Present value of lease payment
Present Value Of An Annuity Due
=C + C*[1-(1+i)^-(n-1)]/i]
Where,
C= Cash Flow per period
i = interest rate per period
n=number of period
= $100000+100000[ 1-(1+0.12)^-(8-1) /0.12]
= $100000+100000[ 1-(1.12)^-7 /0.12]
= $100000+100000[ (0.5477) ] /0.12
= $556375.65
Prsent value of guaranteed residual value
PV= FV/(1+r)^n
Where,
FV= Future Value
PV = Present Value
r = Interest rate
n= periods in number
= $60000/( 1+0.12)^8
=60000/2.47596
= $24232.99
Total = $556375.65+24232.99
=$580609

ekkarill92 answered 2 years ago
Next > < Previous

Related Solutions

Each of the three independent situations below describes a finance lease in which annual lease payments are payable
Each of the three 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.    Required:  For each situation, determine: a. The amount of the annual lease payments as calculated by the lessor. b. The amount the lessee would record as a right-of-use asset and a lease liability
Below describes a sales-type lease in which annual lease payments of $10,000 are payable at the...
Below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Below is a finance lease for the lessee. Lease term (years) : 4 years Asset’s useful life (years) : 7 years Lessor’s implicit rate (known by lessee) : 11% Guranteed residual value by lessee : - Unguaranteed residual value : $4,000 Purchase option after 3 years Purchase option, exercise price : $3,000 Purchase option, reasonably certain? : yes Complete the...
Lease 1 requires 15 annual lease payments of $100,000 beginning on December 31, 2020. Lease 2...
Lease 1 requires 15 annual lease payments of $100,000 beginning on December 31, 2020. Lease 2 requires 10 semi-annual lease payments of $25,000 beginning on June 30, 2021. Lease 3 requires the first of 6 payments of $35,000 to be deferred for 4 years. Accounting standards require the three leases to be recorded as liabilities for the present value of the scheduled payments. Assume that an annual 8% interest rate properly reflects the time value of money for the lease...
Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each...
Ajax entered into a four-year finance lease that specifies eight equal minimum semi-annual lease payments. Each payment is composed of two things: interest expense and a reduction in the net lease liability. The portion of the fourth lease payment applicable to the reduction of the net lease liability should be Question 10 options: more than in the fifth payment. the same as in the third payment. less than in the fifth payment. less than in the third payment.
Each of the four independent situations below describes a finance lease in which annual lease payments...
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.) Situation 1 2 3 4 Lease term (years) 4 7 5 8 Lessor's rate of return 10 % 11...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three 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.) Situation 1 2 3 Lease term (years) 11 21 5 Lessor's rate of return (known by lessee) 10% 8%...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the end 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.) Situation 1 2 3 Lease term (years) 9 20 4 Lessor's rate of return (known by lessee) 12% 10%...
Each of the four independent situations below describes a finance lease in which annual lease payments...
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.) Situation 1 2 3 4 Lease term (years) 6 9 7 10 Lessor's rate of return 9 % 10...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three 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 $1and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 1 2 3 Lease term (years) 10 20 5 Lessor's rate of return (known by lessee) 11% 9% 12%...
Each of the three independent situations below describes a finance lease in which annual lease payments...
Each of the three 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.) Situation 1 2 3 Lease term (years) 10 20 4 Lessor's rate of return (known by lessee) 10% 8%...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT