Class8-Leases2 - M351 Notes, Class 8: Leases, pages...

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M351 Notes, Class 8: Leases, pages 1107-1124 Today’s topics How does the expected value of the equipment at the end of the term influence the accounting? Does the lessor receive payments whose PV is more than the cost of the equipment (Direct financing vs. Sales Type Leases)? A. Residual Value —expected fair value of the leased property at the end of the lease. Residual value may be zero or it may be some other amount. The book does not illustrate but residual value could be negative. B. Residual value may be Guaranteed or Unguaranteed by the lessee C. Lessors assume that they will realize the residual value at the end of the lease whether the residual value is guaranteed or unguaranteed. D. The residual value reduces the amount calculated for the lessor’s periodic lease payments ($23,237.09)—see Illustration 21-17 on page 1108 (the payments were calculated to be $23,981.62 [in Illustration 21-10 on page 1102] when the residual value was assumed to be zero). E.
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This note was uploaded on 12/04/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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Class8-Leases2 - M351 Notes, Class 8: Leases, pages...

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