Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC The lease is classified as sales type lease. at the end of the lease term. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term

Problem 1 Whistler Inc. signed a 6 year non-cancelable lease at the beginning of the year. The leased equipment has a 9 year economic life. The fair value of the leased equipment is $29,000. Annual lease payments due at the beginning of each year are $5,200. There is no bargain purchase option, and the leased asset reverts to the lessor at the end of the lease term. The implicit rate of interest on the lease (known by the lessee) is 6%. Collection of all lease payments is reasonably assured. Part A. What is the classification of this lease from the perspective of the lessee? Part B. What is the classification of this lease from the perspective of the lessor?

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Question Content Area A six-year operating lease requires annual rent payments of $15,000 for years 1, 2, and 3, and annual rent payments of $10,000 for years 4, 5, and 6. The agreement also requires the lessor to pay a $2,800 annual insurance premium for the leased property. Which of the following amounts should be recognized as the rental revenue in year 1 by the lessor? $10,000 $16,800 $15,000 $13,500

Exhibit Leased assets have an expected life of 5 years Depreciation is straight line Annual lease payment is $1,400 Interest rate is 12% 3) Find the total expense in Year 1 if exhibit refers to an Operating Lease 4) Find the total expensee in Year 1 if exhibit refers to a Capital Lease

Date of lease – 7/1/19 Term – 3 years (expires 7/1/22) Semi-annual lease payments of $100,000 every 7/1 and 1/1 Lessee’s incremental borrowing rate – 6% Lessor’s implicit rate of return – 5% (NOT known to lessee) Lessor’s cost of asset leased - $250,000 Guaranteed residual value - $70,000 (lessee believes fair value of the asset at the end of the lease will be greater than $70,000). Lessee and Lessor both have a December 31st   Requirements:   Assume the lease is treated as a finance lease: Determine the present value of the lease payments Prepare an amortization table for the lease payments for the lessee Determine the fair value of the lease from the lessor’s perspective Prepare the lessor’s amortization table for this lease

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In Intermediate Accounting by Whalen on Cengage, chapter 20, homework question 4, how do you calculate the selling price? Sale type lease for 8 years.  Lease pmt due at the end of the year $32,000/yr.  14% interest.  Cost of the equipment is $110,000 and estimate fair value at the end of the lease is $20,000.

Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable. Payment Cash Payment Effective Interest Decrease in balance Outstanding Balance                 63,282   1   10,000       10,000   53,282   2   10,000   6,394   3,606   49,676   3   10,000   5,961   4,039   45,637   4   10,000   5,476   4,524   41,113   5   10,000   4,934   5,066   36,047   6   10,000   4,326   5,674   30,373   7   10,000   3,645   6,355   24,018   8   10,000   2,882   7,118   16,900   9   10,000   ?   ?   ?   10   10,000   ?…