Below are three independent lease scenarios. Payments are made at the end of each year.

Required:

1. Calculate the lease payments for the above three cases.

2. Based on the relation between the lease life and economic life, the lessees will classify the leases as capital leases. For each lease, compute the lessee's depreciation expense for the first year of the lease. Assume the use of the straight-line method and no salvage value at the end of the economic life.

Cost of equipment to lessor Fair value of equipment Guaranteed residual value Unguaranteed residual value Bargain purchase option Life of lease Economic life of asset Rate of return required Case 1 Case 2 $50,000 $64,000 $100,000 $10,000 $70,000 $80,000 $100,000 $ 8,000 10 years 15 years 12% 12 years 16 year Case 3 9% $ 4,500 8 years 10 years 7%