Question
For each of the three independent situations below, determine the amount of the annual rental payments. Each describes a nonoperating lease in which annual rental
For each of the three independent situations below, determine the amount of the annual rental payments. Each describes a nonoperating lease in which annual rental payments are payable at the beginning of each year. Each lease agreement contains an option that permits the lessee to acquire the leased asset at an option price sufficiently lower than the expected market value. Exercise of the option appears reasonably certain. Please make sure your final answer(s) are accurate to the nearest whole number. (and please show the process how you got the final answer)
Situation | |||
1 | 2 | 3 | |
Lease term (years) | 13 | 6 | 15 |
Lessor's rate of return | 5% | 6% | 14% |
Fair market value of leased asset | $70,000 | $420,000 | $120,000 |
Lessor's cost of leased asset | $270,000 | $130,000 | $260,000 |
BPO: | |||
Option price | $10,000 | $50,000 | $10,000 |
Exercisable at end of year: | 7 | 3 | 14 |
a) Calculate the annual repayment for situation 1.
Annual repayment for situation 1:
b) Calculate the annual repayment for situation 2.
Annual repayment for situation 2:
c) Calculate the annual repayment for situation 3.
Annual repayment for situation 3:
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Intermediate Accounting
Authors: J. David Spiceland, James Sepe, Mark Nelson, Wayne Thomas
10th edition
1260481956, 1260310175, 978-1260481952
