Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $145,000 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 4 13% 12% 7 12% Lease term (years) Lessor's and lessee's interest rate Residual value: Estimated fair value Guaranteed by lessee $59,000 0 $8,900 $8,900 $59,000 $69,000 Determine the following amounts at the beginning of the lease (Round your intermediate and final answer to the nearest whole dollar amount.): Situation 2 A The lessor's: 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease The lessee's: 4. Lease payments 5. Right-of-use asset 6. Lease payable B

Answer 1

			Situations
			1	2	3	4
A	The Lessor’s:
	1	Lease payments	870000	870000	1023900	1084000
	2	Gross investment in the lease	870000	929000	1032800	1143000
	3	Net investment in the lease	680906	683337	749206	799055
B	The lessee’s:
	4	Lease payments	870000	870000	1023900	1084000
	5	Right-of-use asset	680906	654998	745180	772367
	6	Lease payable	680906	654998	745180	772367

Situation 1

Lease payments = (145000*6) = 870000

Gross investment in the lease = (145000*6) = 870000

Net investment in the lease = 145000*4.69590= 680906

Right-of-use asset = 145000*4.69590= 680906

Lease payable = 145000*4.69590= 680906

Present value annuity due factor of $1 @ n= 6 , i=11% = 4.69590

Situation 2

Lease payments = (145000*6) = 870000

Gross investment in the lease = (145000*6) + 59000 = 929000

Net investment in the lease = (145000*4.51723)+ (59000*0.48032) = 683337

Right-of-use asset = 145000*4.51723= 654998

Lease payable = 145000*4.51723= 654998

Present value annuity due factor of $1 @ n= 6 , i=13% = 4.51723

Present value factor of $1 @ n= 6 , i=13% = 0.48032

Situation 3

Lease payments = (145000*7)+8900 = 1023900

Gross investment in the lease = (145000*7)+8900+8900 = 1032800

Net investment in the lease = (145000*5.11141)+(17800*0.45235)= 749206

Right-of-use asset = (145000*5.11141)+(8900*0.45235)= 745180

Lease payable = (145000*5.11141)+(8900*0.45235) = 745180

Present value annuity due factor of $1 @ n= 7 , i=12% = 5.11141

Present value factor of $1 @ n= 7 , i=12% = 0.45235

Situation 4

Lease payments = (145000*7)+69000 = 1084000

Gross investment in the lease = (145000*7)+69000 +59000= 1143000

Net investment in the lease = (145000*5.11141)+(128000*0.45235)= 799055

Right-of-use asset = (145000*5.11141)+(69000*0.45235)= 772367

Lease payable = (145000*5.11141)+(69000*0.45235) = 772367

Present value annuity due factor of $1 @ n= 7 , i=12% = 5.11141

Present value factor of $1 @ n= 7 , i=12% = 0.45235