Question

ach of the three independent situations below describes a finance lease in which annual lease payments are payable at the end of each year. The lessee is aware of the lessor’s implicit 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 the tables provided.)

	Situation
	1	2	3
Lease term (years)	8	15	4
Lessor's rate of return (known by lessee)	11%	9%	12%
Lessee's incremental borrowing rate	12%	10%	11%
Fair value of lease asset	$660,000	$1,010,000	$215,000

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. (Round your answers to the nearest whole dollar.)

Lease Payments Right-of-use Asset/Lease Payable Situation 1 Situation 2 Situation 3

Answer 1

Lease Payments $ Situation 1 Situation 2 Situation 3 1,28,252.46 1,25,299 70,787 Right-of-use Asset/Lease payable $ 6,60,000 10,10,000 2,15,000

$ $ 2,15,000 4 Fair value of lease asset (a) Lease term Lesser's rate of return PVIFA (Use attached table) (b) Annual lease payment (c) = (a) / (b) $ 6,60,000 8 11% 5.1461 $ 1,28,252.46 10,10,000 15 9% 8.0607 1,25,299.29 12% 3.0373 70,786.55 $ $ Right-of-use Asset/Lease payable (d) =(c) X(b) $ 6,60,000 $ 10,10,000 $ 2,15,000

Periods 6% 7% 8% 9% 10% 0.9434 0.9346 0.9174 0.9091 0.9259 1.7833 1.8334 1.808 1.7591 1.7355 2.673 2.6243 2.5771 2.5313 2.4869 3.3872 3.3121 3.2397 3.1699 3.4651 4.2124 4.1002 3.9927 3.8897 4.7665 4.6229 4.4859 5.3893 5.2064 5.033 5.9713 4.9173 5.5824 6.2098 6.8017 7.3601 7.8869 6.5152 7.0236 5.7466 6.2469 6.7101 7.139 5.5348 5.9952 6.4177 6.8052 3.7908 4.3553 4.8684 5.3349 5.759 6.1446 6.4951 6.8137 7.1034 7.3667 7.6061 7.4987 8.3838 7.9427 7.1607 7.5361 7.9038 8.8527 8.3577 7.4869 Laanemonen?:42 :: Luananonoma 9.295 9.7122 8.7455 9.1079 8.2442 8.5595 7.7862 8.0607 Periods 11% 12% 13% 14% 15% 0.9009 0.8929 0.885 0.8772 0.8696 1.7125 1.6901 1.6467 1.6257 2.4437 2.2832 2.855 3.3522 3.1024 3.6959 4.2305 4.7122 5.1461 5.537 5.8892 1.6681 2.3612 2.9745 3.5172 3.9975 4.4226 4.7988 5.1317 5.4262 2.4018 3.0373 3.6048 4.1114 4.5638 4.9676 5.3282 5.6502 3.7845 2.3216 2.9137 3.4331 3.8887 4.2883 4.6389 4.1604 4.4873 4.9464 4.7716 5.2161 5.0188