Microsoft Word - Acct4501 Quiz 1

Problem 3- Accounting for leases Calculating Payment as Determined By Lessor

On December 31, 2013 Lessee leased equipment from Lessor for a three year period ending December 31, 2016 and which time possession of the leased asset with revert back to the Lessor. The equipment cost the Lessor $150,850 and has an expected useful life of four years. Its normal sales price is $150,850. The lease contract specifies that the lessee guarantees a residual value at December 31, 2016 of $30,000. Payments on the lease are annual on December 31st starting immediately. The lessors desired rate of return is 10% while the lessees normal borrowing rate is 7%.

Required

1. What is amount of annual lease payments required on this lease as calculated by the lessor? (show calculation/inputs used)