Each of the three 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 of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
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Situation
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1
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2
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3
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Lease term (years)
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12
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20
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4
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Lessor’s rate of return (known by lessee)
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11%
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9%
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12%
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Lessee’s incremental borrowing rate
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12%
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10%
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11%
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Fair value of leased asset
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$620,000
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$1,000,000
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$205,000
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Required:
a. Determine the amount of the annual lease payments as calculated by the lessor and above situations.
b. Determine the amount lessee would record as a leased asset and a lease liability for above situations.