Computing Lease Liability

Lessee Company enters into a $6-$year finance lease of non$-$specialized equipment with Lessor Company on January $1.$ Lessee has agreed to pay $$28,000$ annually beginning immediately on January $1.$ The lessor estimates the residual value of the equipment to be $$5,000$ at lease end, and the lessee guarantees the residual value. The economic life of the asset is $7$ years. The lessee$$s incremental borrowing rate is $7\%$ and the lessor$$s implicit rate is not readily determinable by the lessee company.

Compute the value of the lease liability for the lessee on January $1$ under the following separate scenarios.

a$.$ The lessee estimates that the underlying asset will have a fair value of $$5,000$ at the end of the lease.

b$.$ The lessee estimates that the underlying asset will have a fair value of $$2,000$ at the end of the lease.Computing Lease Liability

Lessee Company enters into a $6-$year finance lease of non$-$specialized equipment with Lessor

Company on January $1.$ Lessee has agreed to pay $$28,000$ annually beginning immediately on

January $1.$ The lessor estimates the residual value of the equipment to be $$5,000$ at lease end, and

the lessee guarantees the residual value. The economic life of the asset is $7$ years. The lessee's

incremental borrowing rate is $7\%$ and the lessor's implicit rate is not readily determinable by the

lessee company.

Compute the value of the lease liability for the lessee on January $1$ under the following separate

scenarios.

a$.$ The lessee estimates that the underlying asset will have a fair value of $$5,000$ at the end of the

lease.

b$.$ The lessee estimates that the underlying asset will have a fair value of $$2,000$ at the end of the

lease.

Note: Round your answers to the nearest whole dollar.