For each of the three independent situations below determine the amount of the annual lease payments. Each describes a capital lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (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) 5 15 4 Lessorâs rate of return 10 % 11 % 9 % Fair value of leased asset $ 90,000 $ 435,000 $ 200,000 Lessorâs cost of leased asset $ 65,000 $ 435,000 $ 160,000 Bargain purchase option: Option price $ 25,000 $ 65,000 $ 37,000 Exercisable at end of year: 5 5 3
For each of the three independent situations below determine the amount of the annual lease payments. Each describes a capital lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. (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) | 5 | 15 | 4 | ||||||
| Lessorâs rate of return | 10 | % | 11 | % | 9 | % | |||
| Fair value of leased asset | $ | 90,000 | $ | 435,000 | $ | 200,000 | |||
| Lessorâs cost of leased asset | $ | 65,000 | $ | 435,000 | $ | 160,000 | |||
| Bargain purchase option: | |||||||||
| Option price | $ | 25,000 | $ | 65,000 | $ | 37,000 | |||
| Exercisable at end of year: | 5 | 5 | 3 | ||||||
Related questions
Each of the four independent situations below describes acapital lease in which annual lease payments are payable at thebeginning of each year. (FV of $1, PV of $1, FVA of $1, PVA of $1,FVAD of $1 and PVAD of $1) (Use appropriate factor(s) fromthe tables provided.)
| Situation | ||||||||||||||||||
| 1 | 2 | 3 | 4 | |||||||||||||||
| Lease term (years) | 4 | 7 | 5 | 8 | ||||||||||||||
| Lessorâs rate of return | 10 | % | 11 | % | 9 | % | 12 | % | ||||||||||
| Fairvalue of leased asset | $ | 61,000 | $ | 361,000 | $ | 86,000 | $ | 476,000 | ||||||||||
| Lessorâs cost of leased asset | $ | 61,000 | $ | 361,000 | $ | 56,000 | $ | 476,000 | ||||||||||
| Residual value: | ||||||||||||||||||
| Guaranteed by lessee | 0 | $ | 61,000 | 0 | $ | 41,000 | ||||||||||||
| Unguaranteed | 0 | 0 | $ | 18,000 | $ | 26,000 | ||||||||||||
| Determine theannual lease payments for each situation: |
Each of the three independent situations below describes acapital lease in which annual lease payments are payable at thebeginning of each year. The lessee is aware of the lessorâsimplicit 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) fromthe tables provided.) |
| Situation | |||
| 1 | 2 | 3 | |
| Lease term(years) | 15 | 25 | 5 |
| Lessorâs rate ofreturn (known by lessee) | 11% | 9% | 12% |
| Lesseeâs incrementalborrowing rate | 12% | 10% | 11% |
| Fair value of leasedasset | $740,000 | $1,120,000 | $325,000 |
| Required: |
| a. | Determine the amount of the annual lease payments as calculatedby the lessor and above situations. Lease Payments |
| Situation 1: Situation 2: Situation 3: |
| b. | Determine the amount lessee would record as a leased asset and alease liability for above situations. |
| Lease Asset/ Lease Liability Situation 1: Situation 2: Situation 3: |
