Below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Below is a finance lease for the lessee.

Lease term (years) : 4 years

Assets useful life (years) : 7 years

Lessors implicit rate (known by lessee) : 11%

Guranteed residual value by lessee : -

Unguaranteed residual value : $4,000

Purchase option after 3 years

Purchase option, exercise price : $3,000

Purchase option, reasonably certain? : yes

Complete the following and show solutions:

A. The Lessor

1. Lease payments

2. Gross investment in the lease

3. Net investment in the lease

B. The Lessee

4. Lease payments

5. Right of use asset

6. Lease payable