Each of the four independent situations below describes a sales-type lease in which annual lease payments of $12,500 are payable at the beginning of each year. Each is a finance lease for the lessee.

Lease term (years) 3 3 3 3

Assets useful life (years) 3 4 4 6

Lessors implicit rate (known by lessee) 14% 14% 14% 14%

Residual value:

Guaranteed by lessee 0 $5,000 $2,500 0

Unguaranteed 0 0 $2,500 $5,000

Purchase option:

After (years) none 2 3 3

Exercise price n/a $7,500 $1,500 $3,500

Reasonably certain? n/a no no yes

Complete the table:

Situation 2 4 A. The lessor's 1. Lease payments 2. Gross investment in the lease 3. Net investment in the lease $ 37,500 37,500 42,500 42,500 B. The lessee's 37,500 4. Lease payments 5. Right-of-use asset 6. Lease payable