Exercise 15-15 Lease concepts; direct financing leases; guaranteed and unguaranteed residual value [LO15-5, 15-6, 15-8]

Learning Objective: 15-05 Describe and demonstrate how both the lessee and lessor account for a capital lease; 15-06 Describe and demonstrate how the lessor accounts for a sales-type lease; 15-08 Explain how lease accounting is affected by the residual value of a leased asset.

Each of the four independent situations below describes a direct financing lease in which annual lease payments of $200,000 are payable at the beginning of each year. Each is a capital lease for the lessee (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.) Situatiorn Lease term (years) Lessor's and lessee's discount rate Residual value 10 10% 4 10 11% 9% 11% Guaranteed by lessee Unguaranteed 0 $100,000 0$60,000 0 $100,000 $140,000 Determine the following amounts at the inception of the lease Situation A The lessor's 1. Minimum lease payments 2. Gross investment in the lease 3. Net investment in the lease B The lessee's 4. Minimum lease payments 5. Leased asset 6. Lease liability