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. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Situation 1 2 3 4 Lease term (years) 5 8 6 9 Lessor's rate of return 10% 11% 9% 12% Fair value of lease asset $ 65,000 $ 365,000 $ 90,000 $ 480,000 Lessor's cost of lease asset $ 65,000 $ 365,000 $ 60,000 $ 480,000 Residual value: Estimated fair value 0 $ 65,000 $ 22,000 $ 34,000 Guaranteed fair value 0 0 $ 22,000 $ 39,000 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 each of the above situations. Note: Round your answers to the nearest whole dollar amount. I have got all answers except for situation 4
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.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Situation | ||||
---|---|---|---|---|
1 | 2 | 3 | 4 | |
Lease term (years) | 5 | 8 | 6 | 9 |
Lessor's rate of return | 10% | 11% | 9% | 12% |
Fair value of lease asset | $ 65,000 | $ 365,000 | $ 90,000 | $ 480,000 |
Lessor's cost of lease asset | $ 65,000 | $ 365,000 | $ 60,000 | $ 480,000 |
Residual value: | ||||
Estimated fair value | 0 | $ 65,000 | $ 22,000 | $ 34,000 |
Guaranteed fair value | 0 | 0 | $ 22,000 | $ 39,000 |
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 each of the above situations. Note: Round your answers to the nearest whole dollar amount.
I have got all answers except for situation 4
![Situation 1
Situation 2
Situation 3
Situation 4
Lease Payments
$
$
$
Residual Value
Guarantee
15,588 $
58,961
$
15,723
$
PV of Lease
Payments
0
$
0 $
0
$
PV of Residual
Value Guarantee
65,000 $
336,797 $
76,880 $
0
0
OO
0
$
$
$
$
Right-of-use
Asset/Lease
Liability
65,000
336,795
76,882
467,762](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F5c6577af-71fb-45c1-b8e8-e6dd9474cf66%2Fec37f77e-c547-430b-869b-5c2a3ada75c8%2F591ntj8_processed.png&w=3840&q=75)
![](/static/compass_v2/shared-icons/check-mark.png)
Table Values:-
Present value factor for n = 10 and i = 12% is 0.3220
Present value of annuity due factor for n = 9 and i=12% is 6.3282
Calculations:-
PV of guaranteed residual value =Guaranteed fair value *Present value factor
= 39,000*0.322 = $12,558
Lease Payment =(Fair value of lease asset- PV of guaranteed residual value)/Present value of annuity due factor
=(480,000-12,558)/6.3282 = $73,867
PV of lease payments =Fair value of lease asset- PV of guaranteed residual value
=480,000-12,558 = $467,442
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)