Treat this as a Finance lease for Lessee and a Sales-Type lease for Lessor.

Assume lease agreement is signed on January 1 of Year 1. Lease payments are to be made at the beginning of each year [HINT: set your period to BEG on your calculator. Alternatively, you can use PVAD (n=6, i=10%)=4.79079, and PV(n=6, i=10%)=0.56447. PVAD means present value factor for annuity due. PV means present value factor for a lumpsum]. Lessee returns the asset to the Lessor at the end of lease term.

Cost of equipment	$250	Lease Term	6 years
FV of equipment	$300	Useful life of asset	7 years
Residual value	$20	Lessor rate = Lessee rate	10%

REQUIRED: Fill in the blanks below. Round your calculations to the nearest dollar. Use the net method, i.e., run interest receivable (payable) accounts through leases receivable (liability) accounts. Books are closed on 12/31.

The PV of the amount Lessor recovers through 6 lease payments is $ _____ .

Annual Cash Payment is $ _____ .

Assume the residual value is guaranteed by the Lessee. The Lessee estimates a residual value of $15 at the end of the lease term. Fill in the blanks for the Lease Receivable and Lease Liability before the first cash payment on Day1 of Year 1 and before the Lessee returns the asset to the Lessor on December 31, Year 6.

	Jan 1, Year 1	Dec. 31, Year 1	Dec. 31, Year 6
Lease Receivable, Lessor
Lease Liability, Lessee

Under the assumption that residual value is guaranteed, calculate Retained Earnings, December 31, Year 1 for the Lessor and the Lessee, respectively. If Retained Earnings are negative, put it in parentheses.

Lessor end of YR1 R/E: Lessee end of YR1 R/E:

Now assume the residual value is unguaranteed. Fill in the blanks for the Lease Receivable and Lease Liability beforethe first cash payment on Day 1 of Year 1 and before the Lessee returns the asset to the Lessor on December 31, Year 6.

	Jan.1, Year 1	Dec. 31, Year 1	Dec. 31, Year 6
Lease Receivable, Lessor
Lease Liability, Lessee