Intermediate Accounting
Intermediate Accounting
9th Edition
ISBN: 9781259722660
Author: J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher: McGraw-Hill Education
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Chapter 15, Problem 15.26E

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

Chapter 15, Problem 15.26E, Lease concepts; finance/sales-type leases; guaranteed and unguaranteed residual value  LO152, LO156

(A)

Expert Solution
Check Mark
To determine
the amounts at the beginning of lease for the lessor at each independent situation.

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:

Lease payments (Situation 1) = (Annual lease payments×Number of fixed payments)=($100,000×7)=$700,000 (1)

Lease payments (Situation 2) = (Annual lease payments×Number of fixed payments)=($100,000×7)=$700,000 (2)

Lease payments (Situation 3) = (Annual lease payments×Number of fixed payments)=($100,000×8)=$800,000 (3)

Lease payments (Situation 4) = (Annual lease payments×Number of fixed payments)=($100,000×8)=$800,000 (4)

The gross investment in lease is calculated as follows:

Gross investment in lease(Situation 1) = [Lease payments + Guaranteed residual value+ Unguaranteed residual value]=[$700,000+$0+$0]=$700,000 (5)

Gross investment in lease(Situation 2) =[Lease payments + Guaranteed residual value+ Unguaranteed residual value]=[$700,000+$50,000+$0]=$750,000 (6)

Gross investment in lease(Situation 3) =[Lease payments + Guaranteed residual value+ Unguaranteed residual value]=[$800,000+$8,000+$0]=$808,000 (7)

Gross investment in lease(Situation 4) =[Lease payments + Guaranteed residual value+ Unguaranteed residual value]=[$800,000+$0+$60,000]=$860,000 (8)

The net investment in the lease is calculated as follows:

Net investment in lease(Situation 1) =[Annual lease payments×PVIFA(9%,7)]=[$100,000×5.48592]=$548,592 (9)

Net investment in lease(Situation 2) =[[Annual lease payments×PVIFA(11%,7)]+[Guaranteed lease payments×PVIF(11%,7)]]=[($100,000×5.23054)+($50,000×0.48166)]=$547,137 (10)

586,842

24,083

Net investment in lease(Situation 3) =[[Annual lease payments×PVIFA(10%,8)]+[Guaranteed lease payments×PVIF(10%,8)]]=[($100,000×5.86842)+($8,000×0.46651)]=$590,574 (11)

Net investment in lease(Situation 4) =[[Annual lease payments×PVIFA(12%,8)]+[Guaranteed lease payments×PVIF(12%,8)]]=[($100,000×5.56376)+($60,000×0.40388)]=$580,609 (12)

(B)

Expert Solution
Check Mark
To determine
the amounts at the beginning of lease for the lessee at each independent situation.

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:

Lease payments (Situation 1) = [(Annual lease payments×Number of fixed payments) +Excess lessee guaranteed residual value]=[($100,000×7)+$0]=$700,000 (13)

Lease payments (Situation 2) = [(Annual lease payments×Number of fixed payments) +Excess lessee guaranteed residual value]=[($100,000×7)+$0]=$700,000 (14)

Lease payments (Situation 3) = [(Annual lease payments×Number of fixed payments) +Excess lessee guaranteed residual value]=[($100,000×8)+$0]=$800,000 (15)

Lease payments (Situation 4) = [(Annual lease payments×Number of fixed payments) +Excess lessee guaranteed residual value]=[($100,000×8)+($60,000$50,000)]=$810,000 (16)

The amount to be recorded as right-of-use asset and lease liability is calculated as follows:

Lessee's value of lease (Situation 1) =[Annual lease payments×PVIFA(9%,7)]=[$100,000×5.48592]=$548,592 (17)

Lessee's value of lease (Situation 2) =[Annual lease payments×PVIFA(11%,7)]=[$100,000×5.23054]=$523,054 (18)

Lessee's value of lease (Situation 3) =[Annual lease payments×PVIFA(10%,8)]=[$100,000×5.86842]=$586,842 (19)

Lessee's value of lease (Situation 4) =[[Annual lease payments×PVIFA(12%,8)]+[Excess lessee-guaranteed residual value×PVIF(12%,8)]]=[($100,000×5.56376)+($10,000×0.40388)]=$560,415 (20)

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E 15-9 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. Lease term (years) Lessor's rate of return (known by lessee) Lessee's incremental borrowing rate Fair value of lease asset 1 10 11% 12% $600,000 Required: For each situation, determine: a. The amount of the annual lease payments as calculated by the lessor. b. The amount the lessee would record as a right-of-use asset and a lease liability. Situation 2 20 9% 10% $980,000 3 4 12% 10% $185,000
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Chapter 15 Solutions

Intermediate Accounting

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