Please let me know what the formulas are to calculate the following: I am seeing
ID: 2432086 • Letter: P
Question
Please let me know what the formulas are to calculate the following: I am seeing different answers and I don't know which is correct.
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.
E 15–26 Lease concepts; finance/sales-type leases; guaranteed and unguaranteed residual valueEach 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. 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 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 $60,000Explanation / Answer
Answers
Working
Situation 1
Situation 2
Situation 3
Situation 4
A
Annual Lease payments
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
B
Term
7
7
8
8
C
Guaranteed by lessee
$ -
$ -
$ 8,000.00
$ 60,000.00
D = (A x B) + C
Minimum Lease Payments
$ 700,000.00
$ 700,000.00
$ 808,000.00
$ 860,000.00
E
Unguaranteed
$ 50,000.00
$ -
$ -
F = D + E
Gross Investments
$ 700,000.00
$ 700,000.00
$ 808,000.00
$ 860,000.00
G
Rate of Interest
9%
11%
10%
12%
H = $1 Annuity for 'B' period and 'G' Interest
Annuity Value of $1 as per table
5.48592
5.23054
5.86842
5.56376
I = A x H
Present Value of Annual Lease payment
$ 548,592.00
$ 523,054.00
$ 586,842.00
$ 556,376.00
J = $1 PV factor of 'G' interest for 'B' no. of period
Present Value factor $1
0
0.48166
0.46651
0.40388
K = (C+E) x J
Present Value of Guaranteed & Unguaranteed by lessee
$ -
$ 24,083.00
$ 3,732.08
$ 24,232.80
L = I + K
Net Investment in the lease
$ 548,592.00
$ 547,137.00
$ 590,574.08
$ 580,608.80
Working
Situation 1
Situation 2
Situation 3
Situation 4
A
Annual Lease payments
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
B
Term
7
7
8
8
C
Guaranteed by lessee
$ -
$ -
$ 8,000.00
$ 60,000.00
D = (A x B) + C
Lease payments
$ 700,000.00
$ 700,000.00
$ 808,000.00
$ 860,000.00
E
Rate of Interest
9%
11%
10%
12%
F = $1 Annuity for 'B' period and 'E' Interest
Annuity Value of $1 as per table
5.48592
5.23054
5.86842
5.56376
G = A x F
Present Value of Annual Lease payment
$ 548,592.00
$ 523,054.00
$ 586,842.00
$ 556,376.00
H = $1 PV factor of 'E' interest for 'B' no. of period
Present Value factor $1
0
0.48166
0
0.40388
I = C x H
Present Value of Guaranteed by lessee
$ -
$ -
$ -
$ 24,232.80
J = G + I
Right to Use Asset
$ 548,592.00
$ 523,054.00
$ 586,842.00
$ 580,608.80
K = J
Lease Liability
$ 548,592.00
$ 523,054.00
$ 586,842.00
$ 580,608.80
Working
Situation 1
Situation 2
Situation 3
Situation 4
A
Annual Lease payments
$ 100,000.00
$ 100,000.00
$ 100,000.00
$ 100,000.00
B
Term
7
7
8
8
C
Guaranteed by lessee
$ -
$ -
$ 8,000.00
$ 60,000.00
D = (A x B) + C
Minimum Lease Payments
$ 700,000.00
$ 700,000.00
$ 808,000.00
$ 860,000.00
E
Unguaranteed
$ 50,000.00
$ -
$ -
F = D + E
Gross Investments
$ 700,000.00
$ 700,000.00
$ 808,000.00
$ 860,000.00
G
Rate of Interest
9%
11%
10%
12%
H = $1 Annuity for 'B' period and 'G' Interest
Annuity Value of $1 as per table
5.48592
5.23054
5.86842
5.56376
I = A x H
Present Value of Annual Lease payment
$ 548,592.00
$ 523,054.00
$ 586,842.00
$ 556,376.00
J = $1 PV factor of 'G' interest for 'B' no. of period
Present Value factor $1
0
0.48166
0.46651
0.40388
K = (C+E) x J
Present Value of Guaranteed & Unguaranteed by lessee
$ -
$ 24,083.00
$ 3,732.08
$ 24,232.80
L = I + K
Net Investment in the lease
$ 548,592.00
$ 547,137.00
$ 590,574.08
$ 580,608.80