For each of the following cases, assume the lessor is a manufacturer or dealer and that the leased asset cost the lessor $84,000.
Case A: A lessor and lessee enter into a lease agreement whereby an 18 wheeler with a fair value of $130,000 and a useful life of five years will be leased for four years. The lease payments will be made at the beginning of each year. The lessee guarantees that at the end of the lease term, the truck's residual value will be at least $20,000. The lessor requires a rate of return at 12%. The lessee can borrow to purchase at an interest rate of 10%.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is $27,916
Case B:
Like case A, except the lessee guarantees that at the end of the lease term, the truck's residual value will be at least $10,000. The expected residual value at the end of the lease term is $20,000.
We already know:
-The amount of the lessor's net investment is $130,000
-The amount of the annual lease payment is $34479
-The amount of the lessor's gross investment is $157,916
-The present value of the minimum lease payments is $130,000
-The amount of the interest income over the life of the lease is $27,916
Make all journal entries for the four years covered by the lease agreement for each case for both the lessee and lessor. i.e,:
Case A: Lessee and Lessor, Case B: Lessee and Lessor