Lease concepts; direct financing leases; guaranteed and unguaranteed residual value
Response to the following problem:
Each of the four independent situations below describes a direct financing lease in which annual lease payments of $10,000 are payable at the beginning of each year. Each is a capital lease for the 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
B. The lessee's:
4. Minimum lease payments
5. Leased asset
6. Lease liability
| |
Situation |
| |
1 |
2 |
3 |
4 |
|
Lease term (years)
|
4
|
4
|
4
|
4
|
|
Asset's useful life (years)
|
4
|
5
|
5
|
5
|
|
Lessor's implicit rate (known by lessee)
|
11%
|
11%
|
11%
|
11%
|
|
Lessee's incremental borrowing rate
|
1 1%
|
12%
|
11%
|
12%
|
|
Residual value:
|
|
|
|
|
|
Guaranteed by lessee
|
0
|
$4,000
|
0
|
0
|
|
Guaranteed by third party
|
0
|
0
|
$4,030
|
0
|
|
Unguaranteed
|
0
|
0
|
0
|
$4,000
|