Answered Essay: Each of the four independent situations below describes a sales-type lease in which annual lease payments of $110,000 are payable at the beginning of

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $110,000 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 Lease term (years) Lessors and lessees interest rate Residual value 996 11% 10% 12% $52,000 Estimated fair value Guaranteed by lessee $8,200 S52,000 S62,000 $8,200 Determine the following amounts at the beginning of the lease (Round your intermediate and final answer to the nearest whole dollar amount.): Situation A The lessors S 770,000770,000 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease 603,451 B The lessees: 4. Lease payments 5. Right-of-use asset 6. Lease payable 770,000 603,451 603,451

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $110,000 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.) Determine the following amounts at the beginning of the lease (Round your intermediate and final answer to the nearest whole dollar amount.):

Expert Answer

 

Situation 1

A. The lessor’s:

1. Minimum lease payments = $110000 x 7 = $770000
2. Gross investment in the lease = $110000 x 7 = $770000
3. Net investment in the lease = $110000 x PVAD9%,7 = $110000 x 5.48592 = $603451

B. The lessee’s:

1. Minimum lease payments = $110000 x 7 = $770000
2. Right-of-use asset = $110000 x PVAD9%,7 = $110000 x 5.48592 = $603451
3. Lease payable = $603451

Situation 2

A. The lessor’s:

1. Minimum lease payments = $110000 x 7 = $770000
2. Gross investment in the lease = ($110000 x 7) + $52000 = $822000
3. Net investment in the lease = ($110000 x PVAD11%,7) + ($52000 x PVIF11%,7)
= ($110000 x 5.23054) + ($52000 x 0.48166) = $600406

B. The lessee’s:

1. Minimum lease payments = $110000 x 7 = $770000
2. Right-of-use asset = $110000 x PVAD11%,7 = $110000 x 5.23054 = $575359
3. Lease payable = $575359

Situation 3

A. The lessor’s:

1. Minimum lease payments = $110000 x 8 = $880000
2. Gross investment in the lease = ($110000 x 8) + $16400 = $896400
3. Net investment in the lease = ($110000 x PVAD10%,8) + ($16400 x PVIF10%,8)
= ($110000 x 5.86842) + ($16400 x 0.46651) = $653177

B. The lessee’s:

1. Minimum lease payments = ($110000 x 8) + $8200 = $888200
2. Right-of-use asset = ($110000 x PVAD10%,8) + ($8200 x PVIF10%,8)
= ($110000 x 5.86842) + ($8200 x 0.46651) = $649352
3. Lease payable = $649352

Situation 4

A. The lessor’s:

1. Minimum lease payments = $110000 x 8 = $880000
2. Gross investment in the lease = ($110000 x 8) + $114000 = $994000
3. Net investment in the lease = ($110000 x PVAD12%,8) + ($114000 x PVIF12%,8)
= ($110000 x 5.56376) + ($114000 x 0.40388) = $658056

B. The lessee’s:

1. Minimum lease payments = ($110000 x 8) + $62000 = $942000
2. Right-of-use asset = ($110000 x PVAD12%,8) + ($62000 x PVIF12%,8)
= ($110000 x 5.56376) + ($62000 x 0.40388) = $637054
3. Lease payable = $637054

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