Each of the independent situations below describes a finance lease in which annual lease payments...
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Accounting
Each of the 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 interest rate.
Situation
1 Lessee
2 Lessor
Lease term
10
years
20
years
Lessor's desired
rate of return
10
%
12
%
Lessee's incremental
borrowing rate
12
%
10
%
Fair value of asset
$ 600,000
$ 400,000
For convenience, here are some table values:
Periods; interest rate
PV, ordinary annuity
PV, annuity due
10 periods, 10%
6.1446
6.7590
10 periods, 12%
5.6502
6.3283
20 periods, 10%
8.5136
9.3649
20 periods, 12%
7.4694
8.3658
Required:For each situation determine the amount of the annual lease payment, as calculated by the lessor. Note: Round your answers to the nearest whole dollar amounts.
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