Chapter 15 HW-Part II

# 03735 13456 presentvalueof1n5i12

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Unformatted text preview: lue of the BPO price (\$50,000 x .59345*) \$420,000 (29,673) Amount to be recovered through periodic lease payments \$390,327 _____________________ Leasepaymentsatthebeginning ofeachofthenext5years:(\$390,3274.10245**) \$95,145 *presentvalueof\$1:n=5,i=11% **presentvalueofanannuitydueof\$1:n=5,i=11% Note:SinceaBPOisexpectedtobeexercised,theleasetermendsforaccounting purposeswhentheoptionbecomesexercisable. Exercise 15-14 (concluded) Situation 3 Amount to be recovered (fair value) Less: Present value of the BPO price (\$22,000 x .77218*) \$185,000 (16,988) Amount to be recovered through periodic lease payments \$168,012 _____________________ Leasepaymentsatthebeginning ofeachofthenext3years:(\$168,0122.75911**) \$60,894 *presentvalueof\$1:n=3,i=9% **presentvalueofanannuitydueof\$1:n=3,i=9% Note:SinceaBPOisexpectedtobeexercised,theleasetermendsforaccounting purposeswhentheoptionbecomesexercisable. Problem 15-8 Requirement 1 Lessor's Calculation of Lease payments Amount to be recovered (fair value) Less: Present value of the guaranteed residual value (\$25,000 x .68301*) \$365,760 (17,075) Amount to be recovered through periodic lease payments \$348,685 _____________________ Leasepaymentsatthebeginning ofeachoffouryears:(\$348,6853.48685**) \$100,000 *presentvalueof\$1:n=4,i=10% **presentvalueofanannuitydueof\$1:n=4,i=10% Requirement 2 The lessee's incremental borrowing rate (12%) is more than the lessor's implicit rate (10%). So, both parties' calculations should be made using a 10% discount rate: Problem 15-8 (continued) Application of Classification Criteria 1 2 3 4 Does the agreement specify that ownership of the asset transfers to the lessee? Does the agreement contain a bargain purchase option? Is the lease term equal to 75% or more of the expected economic life of the asset? Is the present value of the minimum lease payments equal to or greater than 90% of the fair value of the asset? b See calculation below. NO NO NO {4 yrs &lt; 75% of 6 yrs} YES {\$365,760b &gt; 90% of \$365,760} Present Value of Minimum Lease Payments Present value of periodic lease payments (\$100,000 x 3.48685**) \$348,685 17,075 \$...
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## This note was uploaded on 05/08/2010 for the course ACCTG 322 taught by Professor Gill during the Spring '08 term at San Diego State.

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