Three independent situations are given. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Lease term (years) Lessor's rate of return Fair value of leased asset. Lessor's cost of leased asset. Purchase option: Exercise price Exercisable at end of year: Reasonably certain? Situation 1 Situation 2 Situation 3 1 Annual lease payments 4 10% $92,000 $ 66,000 $ 26,000 4 yes Situation 2 4 11% $ 436,000 $ 436,000 $ 66,000 4 no 3 3 9% $ 201,000 $ 161,000 yes $ 38,000 2 Determine the annual lease payments for each situation: Note: Round your intermediate and final answers to the nearest whole dollar amount.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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Three independent situations are given. Each describes a finance lease in which annual lease payments are payable at the beginning
of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is
sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)
Lease term (years)
Lessor's rate of return
Fair value of leased asset.
Lessor's cost of leased asset.
Purchase option:
Exercise price
Exercisable at end of year:
Reasonably certain?
Situation 1
Situation 2
Situation 3
1
Annual lease
payments
4
10%
$92,000
$ 66,000
$ 26,000
4
yes
Situation
2
4
11%
$ 436,000
$ 436,000
$ 66,000
4
no
3
3
9%
$ 201,000
$ 161,000
yes
$ 38,000
2
Determine the annual lease payments for each situation:
Note: Round your intermediate and final answers to the nearest whole dollar amount.
Transcribed Image Text:Three independent situations are given. Each describes a finance lease in which annual lease payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price that is sufficiently lower than the expected fair value that the exercise of the option appears reasonably certain. Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) Lease term (years) Lessor's rate of return Fair value of leased asset. Lessor's cost of leased asset. Purchase option: Exercise price Exercisable at end of year: Reasonably certain? Situation 1 Situation 2 Situation 3 1 Annual lease payments 4 10% $92,000 $ 66,000 $ 26,000 4 yes Situation 2 4 11% $ 436,000 $ 436,000 $ 66,000 4 no 3 3 9% $ 201,000 $ 161,000 yes $ 38,000 2 Determine the annual lease payments for each situation: Note: Round your intermediate and final answers to the nearest whole dollar amount.
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