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. Situation
1 2 3 4
Lease term (years) 7 7 8 8
Lessor's and lessee's
interest rate 9% 11% 10% 12%
Residual value:
Estimated fair value 0 $50,000 $8,000 $50,000
Guaranteed by lessee 0 0 $8,000 $60,000
Determine the following amounts at the beginning of the lease.
Situation
1 2 3 4
A The lessor's:
1. Lease payments 700,000 700,000 800,000
2. Gross investment in the lease 700,000 750,000 808,000
3. Net investment in the lease 5 590,574 548,592 547.137
B The lessee's:
4. Lease payments 700,000 700,000 800,000
5. Right-of-use asset 548,592 586,842
6. Lease payable 548,592 586,842