In: Accounting
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) | 8 | 15 | 3 |
Lessor's rate of return | 11% | 9% | 12% |
Lessee's incremental borrowing rate | 12% | 10% | 11% |
Fair value of lease asset | $760,000 | $1,060,000 | $265,000 |
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 above situations. (Round your answers to nearest whole
dollar.)
situation 1 |
|||||
A-annual lease payment =PMT |
PV*I / 1-(1+r)^-n |
760000*11% / 1-(1.11)^-8 |
83600/.566074 |
147684 |
|
B- right of use asset |
annual lease payment*PVAF at 11% for 8 years |
147684*5.14612 |
760000 |
||
PVAF at 11% for 8 years |
1-(1+r)^-n/r |
.566074/.11 |
5.146127 |
||
situation 2 |
|||||
A-annual lease payment =PMT |
PV*I / 1-(1+r)^-n |
1060000*9% / 1-(1.09)^-15 |
95400/.72546 |
131502.6 |
131503 |
B- right of use asset |
annual lease payment*PVAF at 11% for 8 years |
131502*8.06068 |
1060000 |
||
PVAF at 9% for 15 years |
1-(1+r)^-n/r |
.72546/.09 |
8.060667 |
||
situation 3 |
|||||
A-annual lease payment =PMT |
PV*I / 1-(1+r)^-n |
265000*12% / 1-(1.12)^-3 |
31800/.288219 |
110332.8 |
|
B- right of use asset |
annual lease payment*PVAF at 11% for 8 years |
110332.8*2.401831 |
265000.6 |
265000 |
|
PVAF at 12% for 3years |
1-(1+r)^-n/r |
.72546/.09 |
2.401831 |