Lease Practice Examination: Topic L 7 intereste . Name Seat # Combined Lessee/Lessor - Finance Lease (Lessee), Sales-type Lease (Lesson) (Homework Problem G): Question #'s 104 through 118 (40-45 minutes) On 1/1/17, a lessee (tenant) signed a noncancellable net lease with a lessor to use the lessor's equipment. The following data pertain to this lease: Annual lease payments = $1,300 each, payable 12/31/17, 12/31/18, and 12/31/19. The lease contains no purchase or renewal options. The equipment is returned to the lessor at the end of the lease term. Estimated economic useful life of the leased equipment is 4 years. Lessee guarantees that the residual value of the leased equipment at the end of the lease term is at least $2,000; at the lease commencement date, the lessee estimates that the value of the equipment at the end of the lease term will be only $1,400. Executory costs = $150 for maintenance, paid with each lease payment, Fair value of leased equipment at the inception of the lease = $5,300. Lessor's carrying value of the equipment = $4,000 ($5,000 initial cost - $1,000 accumulated depreciation to date). Lease term is 3 years. Lessee's incremental borrowing rate is 10%. Lessor's implicit interest rate in the lease is 8%, which is known to the lessee The leased equipment has an alternative use to the lessor at the end of the lease term. Collection of payments from the lessee is probable and reasonably assured. Additional data: (round all numerical answers to the nearest whole dollar) 3 periods 4 periods 0.7513 0.6830 Present value (PV) of 1 at 10% 0.7938 0.7350 PV of 1 at 8% 2.7355 3.4869 PV of an annuity due of 1 at 10% 2.7833 3.5771 PV of an annuity due of 1 at 8% 2.4869 3.1699 PV of an ordinary annuity of 1 at 10% 2.5771 3.3121 PV of an ordinary annuity of 1 at 8% Required: Answer question #'s 104 through 115, which follow, using the above data: 104. What is the amount of the present value of lease payments used in the lease classification test? 105. According to ASC Topic 842, how should the lessee classify this lease? 106. According to ASC Topic 842, how should the lessor classify this lease? 107. What is the amount of the present value of the lease payments used in determining the lessee's lease liability at the commencement of the lease? 108. What is the amount of the present value of any unguaranteed residual value in this lease? 109. What is the amount of the lessor's net investment in this lease on 1/1/17? 110. Assuming for this question only that the lessee's present value of lease payments in recording its lease liability on 1/1/17 was $6,000, what amount, if any, amortization expense should the lessee report on 12/31/18? 111. Assuming for this question only that the lessee's present value of lease payments in recording its lease liability on 1/1/17 was $6,000, what amount, if any, should the lessee record as "interest expense" on 12/31/17? Page 320 - 33 L 112. Assuming for this question only that the lessee's present value of lease payments in recording its lease liability on 1/1/17 was $6,000, what amount, if any, should the lessee debit to lease liability on 12/31/17? 113. Assuming for this question only, that the lessor's net investment in the lease recorded on 1/1/17 was $7,000, what amount, if any, should the lessor credit to interest income on 12/31/17? 114. Assuming for this question only that the lessor's net investment in the lease recorded on 1/1/17 was $7,000, what amount, if any, should the lessor credit to its net investment in the lease on 12/31/17? 115. What is the total amount of cash, if any, the lessee should deliver to the lessor on 12/31/19? 116. At what amount, if any, should the lessor record "sales revenue" on 1/1/17? 117. At what amount, if any, should the lessor record "cost of goods sold" on 1/1/17? 118. How much "depreciation expense" should the lessor record on 12/31/17
