Exercise 15-12 Lessor calculation of annual lease payments; lessee calculation of asset and liability [LO15-5]

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 lessors 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.)

	Situation
	1	2	3
Lease term (years)	10	20	4
Lessors rate of return (known by lessee)	11%	9%	12%
Lessees incremental borrowing rate	12%	10%	11%
Fair value of leased asset	$710,000	$1,090,000	$295,000

Required:

a.	Determine the amount of the annual lease payments as calculated by the lessor and above situations.

situation 1

Situation 2

situation 3

b.	Determine the amount lessee would record as a leased asset and a lease liability for above situations.
	situation 1 Situation 2 situation 3