Concept explainers
Lease concepts; finance/sales-type leases; guaranteed and unguaranteed residual value
• LO15–2, LO15–6
Each of the four independent situations below describes a sales-type lease in which annual lease payments of $100,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of the lease:
A. The lessor’s:
1. Lease payments
2. Gross investment in the lease
3. Net investment in the lease
B. The lessee’s:
4. Lease payments
5. Right-of-use asset
6. Lease liability
(A)
Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessor | ||||
Lease payments | (1)700,000 | (2) 700,000 | (3)800,000 | (4)800,000 |
Gross investment in the lease |
(5)700,000 | (6)750,000 | (7)808,000 | (8)860,000 |
Net investment in the lease |
(9)548,592 | (10)547,137 | (11)590,574 | (12)580,609 |
Table (1)
Working note:
The lease payment is calculated as follows:
The gross investment in lease is calculated as follows:
The net investment in the lease is calculated as follows:
586,842
24,083
(B)
Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessor | ||||
Lease payments | (13) 700,000 | (14) 700,000 | (15) 800,000 | (16) 810,000 |
Right-of-use asset | (17)548,592 | (18)523,054 | (19)586,842 | (20)560,415 |
Lease payable | (17) 548,592 | (18)523,054 | (19)586,842 | (20)560,415 |
Table (2)
The lease payment is calculated as follows:
The amount to be recorded as right-of-use asset and lease liability is calculated as follows:
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Chapter 15 Solutions
Intermediate Accounting
- pare.9arrow_forwardExercise 15-9 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2] Each of the three 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 Lease term (years) 11 21 4 Lessor's rate of return (known by lessee) 10% 8% 11% Lessee's incremental borrowing rate 11% 9% 10% Fair value of lease asset $800,000 $1,180,000 $385,000 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.arrow_forwardExercise 15-9 (Algo) Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-2] Each of the three 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) Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset Situation 1 Situation 2 Situation 3 Lease Payments Right-of-use Asset/Lease 1 Payable 10 10% 11% $790,000 Situation 2 20 8% 9% 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. $1,170,000 5 11% 10% $375,000arrow_forward
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