Two cases...
For each of the following cases, assume the lessor is amanufacturer or dealer and that the leased asset cost the lessor$84,000.
Case A: A lessor and lessee enter into a lease agreement wherebyan 18 wheeler with a fair value of $130,000 and a useful life offive years will be leased for four years. The lease payments willbe made at the beginning of each year. The lessee guarantees thatat the end of the lease term, the truck's residual value will be atleast $20,000. The lessor requires a rate of return at 12%. Thelessee can borrow to purchase at an interest rate of 10%.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is$27,916
Case B:
Like case A, except the lessee guarantees that at the end of thelease term, the truck's residual value will be at least $10,000.The expected residual value at the end of the lease term is$20,000.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is$27,916
Make all jorunal entries for the four years covered by the leaseagreement for each case for both the lessee and lessor. i.e,:
Case A: Lessee and Lessor, Case B: Lessee and Lessor
Two cases...
For each of the following cases, assume the lessor is amanufacturer or dealer and that the leased asset cost the lessor$84,000.
Case A: A lessor and lessee enter into a lease agreement wherebyan 18 wheeler with a fair value of $130,000 and a useful life offive years will be leased for four years. The lease payments willbe made at the beginning of each year. The lessee guarantees thatat the end of the lease term, the truck's residual value will be atleast $20,000. The lessor requires a rate of return at 12%. Thelessee can borrow to purchase at an interest rate of 10%.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is$27,916
Case B:
Like case A, except the lessee guarantees that at the end of thelease term, the truck's residual value will be at least $10,000.The expected residual value at the end of the lease term is$20,000.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is$27,916
Make all jorunal entries for the four years covered by the leaseagreement for each case for both the lessee and lessor. i.e,:
Case A: Lessee and Lessor, Case B: Lessee and Lessor
Related questions
| Which of the following is a criterion for classifying a lease as a capital lease by a lessee? | |
| A. | The present value of the minimum lease payments is 75% or more of the fair value of the leased property. |
| B. | The lease term is equal to 75% or more of the estimated economic life of the leased property. |
| C. | The lease agreement contains an option to purchase the leased property at its fair value at the end of the lease term. |
| D. | The lease agreement requires that title of the leased property remains with the lessor at the end of the lease term. |
