Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit rate of return. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Situation 1 2 3 4 Lease term (years) 5 8 6 9 Lessor's rate of return 10% 11% 9% 12% Fair value of lease asset $ 65,000 $ 365,000 $ 90,000 $ 480,000 Lessor's cost of lease asset $ 65,000 $ 365,000 $ 60,000 $ 480,000 Residual value: Estimated fair value 0 $ 65,000 $ 22,000 $ 34,000 Guaranteed fair value 0 0 $ 22,000 $ 39,000 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. Note: Round your answers to the nearest whole dollar amount. I have got all answers except for situation 4
Each of the four independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor’s implicit
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
| Situation | ||||
|---|---|---|---|---|
| 1 | 2 | 3 | 4 | |
| Lease term (years) | 5 | 8 | 6 | 9 |
| Lessor's rate of return | 10% | 11% | 9% | 12% |
| Fair value of lease asset | $ 65,000 | $ 365,000 | $ 90,000 | $ 480,000 |
| Lessor's cost of lease asset | $ 65,000 | $ 365,000 | $ 60,000 | $ 480,000 |
| Residual value: | ||||
| Estimated fair value | 0 | $ 65,000 | $ 22,000 | $ 34,000 |
| Guaranteed fair value | 0 | 0 | $ 22,000 | $ 39,000 |
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. Note: Round your answers to the nearest whole dollar amount.
I have got all answers except for situation 4
Table Values:-
Present value factor for n = 10 and i = 12% is 0.3220
Present value of annuity due factor for n = 9 and i=12% is 6.3282
Calculations:-
PV of guaranteed residual value =Guaranteed fair value *Present value factor
= 39,000*0.322 = $12,558
Lease Payment =(Fair value of lease asset- PV of guaranteed residual value)/Present value of annuity due factor
=(480,000-12,558)/6.3282 = $73,867
PV of lease payments =Fair value of lease asset- PV of guaranteed residual value
=480,000-12,558 = $467,442
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