Question

Exercise 15-26 Lease concepts; finance/salestype leases; guaranteed and unguaranteed residual value [LO15-2, 15-6] Each of the four independent situations below describes a sales-type lease in which annual lease payments of $170.000 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 18% Lease term (years) Lessor's and lessee's interest rate Residual value: Estimated fair value Guaranteed by lessee $64, eee $9,480 $9,400 $64, Bee $74.eeg Determine the following amounts at the beginning of the lease (Round your Intermediate and final answer to the nearest whole dollar amount.): Situation A The lessor's: B 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease The lessee's 4. Lease payments 5. Right-of-use asset 6. Lease payable

Answer 1

$1,190,000 $1,190,000 $1,369,400 $1,434,000 Lease payments (referi) Gross investments in the lease (referi) Net investment in the lease (refer ii) $1,190,000 $1,254,000 $1,378,800 $1,498,000 $889,191.44 $943,236.44 $1,065,239.97 $1,001,574.50 Prepare summarized data for gross investment in lease, in the manner given below: E A B C D 1 Number of years 2 Annual lease payment $170,000 $170,000 $170,000 3 Total payments $1,190,000 $1,190,000 $1,360,000 4 Guaranteed residual value SO So $9,400 5 Lease payment $1,190,000 $1,190,000 $1,369,400 6 Estimated fair value SO S64,000 $9,400 7 Gross investment in lease $1,190,000 $1.254.000 $1,378,800 $170,000/ $1,360,000 $74,000 $1,434,000 $64,000 $1,498,000 Prepare the spreadsheet showing amounts mentioned in summary, in the manner given below: в с D E 1 Number of years 17 8 8 2 Annual lease payment 170000 =B2 =B2 =B2 3 Total payments =B1*B2 =C1*C2 =D1*D2 =E1*E2 4 Guaranteed residual value o JO 9 400 74000 5 Lease payment =B3+B4 =C3-C4 =D3+D4 =E3+E4 6 Estimated fair value 64000 9400 64000 7 Gross investment in lease =B5+B6=C5+C61=D5 D6 =E5+E6

Calculate net investment of lease, in the manner given below: А Present value of annuities D Present Net Estimated value of investment in fair value guaranteed lease by lessee $170,000 $889,191.44 $170,000 $32,842.12 $943,236.44 $170,000 $10,157.06 $1,065,239.97 $170,000 $55,735.89 $1,001,574.50 2 Situation 1 $719,191.44 3 Situation 2 $740,394.32 4 Situation 3 $885,082.91 5 Situation 4 $775,838.61 Prepare the spreadsheet showing calculation of net investment in the manner given below: A Ε Net Present value of annuities Estimated Present value of fair value guaranteed by lessee investment in lease 0 2 Situation 1 =PV(11%,6,-170000,0) 170000 3 Situation 2]-PV(10%,6,-170000,0) 170000 4 Situation 3 =PV(8%,7,-170000,0) 170000 5 Situation 4 =PV(12%,7,-170000,0) 170000 =B2+C2 IEPV(10% 7.0,-64000) |-B3+C3+D3 =PV(8%,8,0,-18800) =B4+C4+D4 =PV(12%,8,0,-138000) =B5+C5+D5 Lease payments (referi) Right to use asset (refer ii) Lease liability (refer ii) $1,190,000 $1,190,000 $1,369,400 $1.434.000 $889,191| $910,394 $1,060,161| $975,726| $889,191 $910,394 $1,060,161 $975,726

Prepare summarized data for gross investment in lease, in the manner given below: C D E А 1 Number of years 2 Annual lease payment 3 Total payments 4 Guaranteed residual value 5 Lease payment $170,000 $170,000 $170.000 $170.000 $1,190,000 $1,190,000 $1,360,000 $1,360,000 - $9,400 $74,000 $1,190,000 $1,190,000 $1,369,400 $1,434,000 Prepare the spreadsheet showing amounts mentioned in summary, in the manner given below: А A B C D E 1 Number of years 7 8 8 2 Annual lease payment 170000 =B2 I=B2 =B2 3 Total payments =B1*B2 =C1*C2 =D1*D2 =E1*E2 4 Guaranteed residual value o 9400 74000 5 Lease payment =B3+B4 =C3+C4 =D3+D4 =E3+E4 Calculate amount of right to use asset in the manner given below: А B Present value of annuities 2 Situation 1 $719,191.44 3 Situation 2 $740,394.32 4 Situation 3 $885,082.91 5 Situation 4 8775,838.61 C D E Present Estimated Right to use of fair value value of asset guaranteed $170,000 $889,191.44 $170,000 $910,394.32 $170,000 $5,078.53 $1,060,161.44 $170,000 $29,887.36 $975,725.97

Prepare the spreadsheet showing calculation of amount of right to use asset, in the manner given below: А F Present value of Estimated annuities fair value 2 Situation 1 =PV(11%,6,-170000,0) 170000 3 Situation 2 =PV(10%,6,-170000,0) 1700000 4 Situation 3 PV(8%,7,-170000,0) 170000 5 Situation 4 =PV(12%,7,-170000,0)|170000 Present value of Right to use guaranteed of asset =B2+C2 =B3+C3+D3 =PV(8%,8,0,-9400) =B4+C4+D4 =PV(12%,8,0,-74000) |=B5+C5+D5 |