Each of the independent situations below describes a capital lease in which annu

Question

Each of the independent situations below describes a capital lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate.

For convenience, here are some table values:

For each situation, determine the amount of the annual lease payments, as calculated by the lessor:

Situation 1:

Situation 2:

Situation 1 2 Lease Term 10 years 20 years Lessor's Desired -The rate of Return 10% 12% Lessee's incremental -Borrowing Rate 12% 10% Fair Value of the asset $600,000 $400,000

Explanation / Answer

Situation 1 = 600000/6.7590= $88771 Situation 2 = 400000/8.3658= $47814

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