Lease concepts
Response to the following problem:
Four independent situations are described below. For each, annual lease payments of $100,000 (not including any executory costs paid by lessor) are payable at the beginning of each year. Each is a capital lease for both the lessor and lessee.
Determine the following amounts at the inception of the lease:
A. The lessor's:
1. Minimum lease payments
2. Gross investment in the lease
3. Net investment in the lease
4. Sales revenue
5. Cost of goods sold
6. Dealer's profit
B. The lessee's:
7. Minimum lease payments
8. Leased asset
9. Lease liability
*Over and above any arnount guaranteed by the lessee (after a deductible equal to any amount guaranteed by the lessee).
| |
Situation |
| |
1 |
2 |
3 |
4 |
|
Lease term (years)
|
4
|
5
|
6
|
4
|
|
Lessor's cost
|
$369,175
|
$449,896
|
$500,000
|
$400,000
|
|
Asset's useful life (years)
|
6
|
7
|
7
|
5
|
|
Lessor's implicit rate (known by lessee)
|
10%
|
12%
|
9%
|
10%
|
|
Lessee's incremental borrowing rate
|
9%
|
10%
|
11%
|
12%
|
|
Residual value-
|
|
|
|
|
|
Guaranteed by lessee
|
0
|
$ 53,000
|
$ 40,000
|
$ 60,000
|
|
Guaranteed by third party*
|
0
|
0
|
0
|
$ 50,000
|
|
Unguaranteed
|
$ 30,000
|
0
|
$ 35,000
|
$ 40,000
|
|
Executory costs paid annually by lessor
|
$ 1,000
|
$ 8,000
|
$ 5,000
|
$ 10,000
|