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Each of the three independent situations below describes a finance lease in which annual lease payments...

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Accounting

Each of the three independent situations below describes afinance lease in which annual lease payments are payable at theend of each year. The lessee is aware of the lessor’simplicit 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 thetables provided.)

Situation
123
Lease term (years)10155
Lessor's rate of return10%8%11%
Lessee's incremental borrowing rate11%9%10%
Fair value of lease asset$780,000$1,070,000$275,000


Required:
a. & b. Determine the amount of the annual lease payments ascalculated by the lessor and the amount the lessee would record asa right-of-use asset and a lease liability, for above situations.(Round your answers to nearest whole dollar.)

Answer & Explanation Solved by verified expert
3.7 Ratings (438 Votes)

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

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