Question

Information for four separate finance/sales-type lease scenarios is provided as follows: Complete the table, assuming that the lessee is aware of the lessor’s implicit lease rate.

Note: Round each amount to the nearest whole dollar.

	A	B	C	D
Lessor’s desired rate of return	6%	7%	6%	8%
Lease term	5	10	8	4
Fair value of underlying asset	$35,000	$140,000	$18,000	$230,000
Beginning or end of year payments	Beginning	Beginning	Beginning	End
Guaranteed residual value	0	12,000	0	80,000
Residual value expected by lessee	0	0	0	30,000
Unguaranteed residual value expected by lessor	0	0	3,500	0
Initial direct lease costs	250	1,000	0	1,200
Prepaid lease payment	0	1,500	0	0
Lessor lease payment
Lease liability
Right-of-use asset

Answer 1

Lessor lease payments	$   8,308.87	$   19,064.32	$   2,545.01	$   51,688.12
Lease payment liability	$ 35,000.00	$ 133,899.81	$ 15,804.00	$ 171,197.61
Right-to -use asset	$   8,558.87	$   21,564.32	$   2,545.01	$      1,200.00

Notes:-

1. Right to use asset =The initial amount of the lease liability, plus any lease payments made to the lessor before the lease commencement date, plus any initial direct costs incurred, minus any lease incentives received .

2. calculation of lease rental and liabilty

Lease term	5	10	8	4
Rate of return	6%	7%	6%	8%
	A	B	C	D
Fair value of asset	$ 35,000.00	$ 140,000.00	$ 18,000.00	$ 230,000.00
Less: PV of (GV+ UGRV)		$      6,100.19	$    2,196.00	$    58,802.39
Balance	$ 35,000.00	$ 133,900.00	$ 15,804.00	$ 171,198.00
Annuity factor	4.2124	7.0236	6.2098	3.3121
Lease rental	$    8,309.00	$    19,064.00	$    2,545.00	$    51,688.00

Lease payment Liabilty

= PV of lease rental

3. Annutity factors

	Annuity factors
year	6%	7%	6%	8%
1	0.943396	0.934579	0.943396	0.925926
2	0.889996	0.873439	0.889996	0.857339
3	0.839619	0.816298	0.839619	0.793832
4	0.792094	0.762895	0.792094	0.73503
5	0.747258	0.712986	0.747258
6		0.666342	0.704961
7		0.62275	0.665057
8		0.582009	0.627412
9		0.543934
10		0.508349
	4.212364	7.023582	6.209794	3.312127