Concept explainers
Lease concepts; sales-type leases; guaranteed and unguaranteed residual value
• LO15–2, LO15–6
Each of the four independent situations below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Each is a finance lease for the lessee. Determine the following amounts at the beginning of the lease.
- 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 liability
(A)
Lessee guaranteed residual value
The lessee guaranteed residual value of leased asset is an estimation of the commercial value of the asset at the end of lease term. The present value is considered when determining the lease classification criteria (Criteria 4). Lessee guaranteed residual value is added to lease receivable and also added to sales revenue.
To Determine: the amounts at the beginning of lease for the lessor at each independent situation.
Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessor | ||||
Lease payments | (1) 40,000 | (2) 40,000 | (3) 40,000 | (4)33,000 |
Gross investment in the lease |
(5)40,000 | (6)44,000 | (7)44,000 | (8)33,000 |
Net investment in the lease |
(9)34,437 | (10)37,072 | (11)37,072 | (12)29,319 |
Table (1)
Working note:
The lease payment is calculated as follows:
The gross investment in lease is calculated as follows:
The net investment in the lease is calculated as follows:
(B)
Explanation of Solution
Situation | ||||
1 | 2 | 3 | 4 | |
Lessee | ||||
Lease payments | (13) 40,000 | (14) 40,000 | (15) 40,000 | (16)33,000 |
Right-of-use asset | (17)34,437 | (18) 34,437 | (19) 34,437 | (20)29,319 |
Lease payable | (17) 34,437 | (18) 34,437 | (19) 34,437 | (20) 29,319 |
Table (2)
The lease payment is calculated as follows:
The amount to be recorded as right-of-use asset and lease liability is calculated as follows:
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Chapter 15 Solutions
INTERMEDIATE ACCOUNTING (LL) W/CONNECT
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