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se the following information for the question 7 and 8. n January 1, 2017, Nelson Co. leased a building to Wise Inc. The relevant information related o the leases is as follows. The lease term is 4 years, and its economic life is 5 years. The annual lease payment is made at the beginning of the year The fair value of the building is $10,000. The guaranteed resi estimates that the expected residual value at the end of lease ten value is $2,000. The lessese be $2,100. e lessors implicit rate (rate of return) is 3%, and this rate is known to Lessee. The lessees incremental borrowing rate is 6%. How much is the amount of annual lease payment? a. $2,148 b. $2,291 c. $2,612 d. $2,723 nt of Lease Liability recorded on January 1, 2017 by the Wise I S. What is the amount of Lease Liability recorded on January 1,2017 by the Wise b before the first payment is paid? a. $7,890 b. $8,223 c. $8,414 d. $8,771

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Desired Rate of return for Lessor Lease ternm Calculate the amount of the annual rental payment. Salvage Value Guaranteed Amount to be recovered (fair value) Less: Present Value of the residual value ($2000 x 0.88849) Amount to be recovered through periodic lease payments 3% 4.00 years 2,000 10,000 (1,777)B 8,223 C A+B Present Value of Annuity factor @3% n-4 years Lease payment at the beginning of each year Year Year for discounting PV factor @ 3% 3.82861 2,148| E-C/D 2 4 4 4 0.88849 0 1.00000 0.97087 0.94260 0.91514 3.82861 Answer 7: Option a. $ 2,148 Lease payment at the beginning of each year 2,148 Lessee Books FMV Lease term estimated useful life Percentage 10,000 4 Years 5 80% use lower of Lessors incremental borrowing rate is 6%, and the implicit rate 3% of the lessor if known residual value and a lower salvage value realized by a lessor at the end of the lease (2000 Guaranteed Expected) 0 Workings Year Year for discounting Annual Lease Installments paid at the beginning of the year PV factor @ 3% Present Value of Min lease payments Value at which to be recorded as asset by leasee is lower of FMV or NPV 2100 2 4 0 4 2,148 2,148 2,148 2,148 8,223 2,148 1.0000 0.970870.940.915140.88849 2,085 2,0241,966 8,223 Answer 8: Option b: $ 8,223 Value at which to be recorded as asset by leasee is lower of FMV or NPV 8,223

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