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1 . Lessor s Calculation of Rental Payments Fair value of asset Rent payments at the beginning of each of eight quarters ($112,080 7.47199*) *present value of an annuity due of $1: n=8, i=2% $112,080 $15,000
2. January 1, 2011 Lease receivable ($15,000 x 8) Cost of goods sold (lessor s cost) Sales revenue (fair market value) Unearned interest revenue ($120,000 - 112,080) Inventory of equipment (lessor s cost) Cash (rental payment) Lease receivable April 1, 2011 Cash (rental payment) Lease receivable Unearned interest revenue Interest revenue (2% x [$112,080 15,000]) 120 85 112.08 7.92 85 15 15
15 15 1.942 1.942
E 15-6
SITUATION 1
CRITERIA >Transfers ownership to the lessee >Contains a bargain purchase option >Lease term is equal to or greater than 75 percent of the estimated economic life of the leased property lease term 4 years useful life 6 years 0.667 >The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property
90% x 44000 = 39600 PV = 3,72325* x 10000 = 37232,5
NO
NO
NO
CAPITAL LEASE
SITUATION 3
CRITERIA >Transfers ownership to the lessee >Contains a bargain purchase option >Lease term is equal to or greater than 75 percent of the estimated economic life of the leased property lease term 4 years useful life 6 years 0.667 >The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property
90% x 41000 = 36900 PV = 3,72325* x 10000 = 37232,5
NO
NO
YES
CAPITAL LEASE
SITUATION 4
CRITERIA >Transfers ownership to the lessee >Contains a bargain purchase option >Lease term is equal to or greater than 75 percent NO
of the estimated economic life of the leased property lease term 4 years useful life 6 years 0.667 >The present value of the minimum lease payments equals or exceeds 90 percent of the fair value of the leased property
90% x 39000 = 35100 PV = 3,54595* x 10000 = 35459,5
NO
YES
CAPITAL LEASE