Question

6 10 points Each of the four independent situations below describes a sales-type lease in which annual lease payments of $130,000 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. EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 2 4 Lease term (years) Lessor's and lessee's interest rate Residual value: Estimated fair value $56,000 $8,600 $56,000 Guaranteed by lessee $8,600 $66,000 1 7 8% 7 10% 3 8 9% 11% Determine the following amounts at the beginning of the lease: (Round your intermediate and final answer to the nearest whole dollar amount.) Answer is complete but not entirely correct. Situation The lessor's 1. Total lease payments 2 Gross investment in the 910,000 910,000 1,048,600 910.000 910,000 786,699 730,974 910,000 779,967 ® ® 1 106.000 766,885 771,224 B 3. Net investment in the lease The lessee's 4. Total lease payments 5. Right-of-use asset 6. Lease liability 910,000 730.974 730.974 910.000 724.9203 696,183 1,048,600 1,106,000 3 788,699 766,885 779,967 771,224

Answer 1

		Situation
		1	2	3	4
		$	$	$	$
A	The Lessor’s:
	1. Lease payments	130,000 × 7 = 910,000	130,000 × 7 = 910,000	130,000 × 8 = 1,040,000	130,000 × 8 = 1,040,000
	2. Gross investment in lease	910,000 + 0 = 910,000	910,000 + 56,000 = 966,000	1,040,000 + 8,600 = 1,048,600	1,040,000 + 56,000 = 1,096,000
	3. Net investment in the lease	175,000 × 5.6228 = 983,990	175,000 × 5.35526 = 937,171	175,000 × 6.03295 = 1,055,766	175,000 × 5.71220 = 999,635
B	The Lessee’s:
	4. Lease payments	130,000 × 7 = 910,000	130,000 × 7 = 910,000	130,000 × 8 = 1,040,000	130,000 × 8 = 1,040,000
	5. Right-of-use asset	175,000 × 5.6228 = 983,990	175,000 × 5.35526 = 937,171	175,000 × 6.03295 = 1,055,766	175,000 × 5.71220 = 999,635
	6. Lease payable	175,000 × 5.6228 = 983,990	175,000 × 5.35526 = 937,171	175,000 × 6.03295 = 1,055,766	175,000 × 5.71220 = 999,635

Note: The values in Row 3, 5 & 6 are approx. values.

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