Question

Each of the four independent situations below describes a sales-type lease in which annual lease payments of $14,000 are payable at the beginning of each year. Each is a finance lease for the lessee. (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			4
Lease term (years)		3			3			3			3
Asset’s useful life (years)		3			4			4			6
Lessor’s implicit rate (known by lessee)		12	%		12	%		12	%		12	%
Residual value:
Guaranteed by lessee		0		$	5,600		$	2,800			0
Unguaranteed		0			0		$	2,800		$	5,600
Purchase option:
After (years)		none			2			3			3
Exercise price		n/a		$	7,800		$	1,800		$	3,800
Reasonably certain?		n/a			no			no			yes

  
Determine the following amounts at the beginning of the lease: (Round your final answers to nearest whole dollar.)

	Situation 1 2 3 4 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 payable

PV charts can be accessed through google.

Answer 1

		Situation
		1	2	3	4
A.	The lessor’s
	1. Lease payments	42000	47600	47600	45800
	2. Gross investment in the lease	42000	47600	47600	45800
	3. Net investment in the lease	41084	45070	45070	43789
B.	The lessee’s:
	4. Lease payments	42000	42000	42000	45800
	5. Right-of-use asset	41084	41084	41084	43789
	6. Lease payable	41084	41084	41084	43789

14000*3 = 42000

(14000*3)+5600 = 47600

(14000*3)+2800+2800 = 47600

(14000*3)+3800 = 45800

PV value of annuity due @12% for 3 years = 2.93460

PV value of @ 12% for 3 years = 0.71178

14000*2.93460 = 41084

(14000*2.93460)+(5600*0.71178) = 45070

(14000*2.93460)+(3800*0.71178) = 43789