INTM ACCT CH 15 ANSWERSExercise 15-11Situation 1(a)$600,000 ÷ 5.88923** = $101,881fairleasevalue payments** present value of an ordinary annuity of $1: n=10, i=11%(b)$101,881x 5.88923** = $600,000* leaseleased asset/paymentslease liability* rounded** present value of an ordinary annuity of $1: n=10, i=11%(a)$185,000 ÷ 3.03735** = $60,908fairleasevalue payments** present value of an ordinary annuity of $1: n=4, i=12%(b)$60,908x 3.10245** = $188,964leaseleased asset/paymentslease liability** present value of an ordinary annuity of $1: n=4, i=11%But since this amount exceeds the asset’s fair value,the lessee must capitalize the $185,000fair valueinstead.

Situation 2(a)$980,000 ÷ 9.12855** = $107,355fairleasevalue payments** present value of an ordinary annuity of $1: n=20, i=9%(b)$107,355x 9.12855** = $980,000‡leaseleased asset/paymentslease liability** present value of an ordinary annuity of $1: n=20, i=9%‡ rounded for convenienceSituation 3

INTM ACCT CH 15 ANSWERSExercise 15-12Situation 1Amount to be recovered (fair value) $50,000___________________Lease payments at the beginning of each of the next 4 years: ($50,000 ÷ 3.48685**)$ 14,340** present value of an annuity due of $1: n=4, i=10%Situation 2Amount to be recovered (fair value) $350,000Less:Present value of the residual value ($50,000 x .48166*)(24,083)Amount to be recovered through periodic lease payments$325,917_______________________Lease payments at the beginning of each of the next 7 years: ($325,917 ÷ 5.23054**)$ 62,310* present value of $1: n=7, i=11%** present value of an annuity due of $1: n=7, i=11%

INTM ACCT CH 15 ANSWERSExercise 15-12 (concluded)Situation 3Amount to be recovered (fair value) $75,000Less:Present value of the residual value ($7,000 x .64993*)(4,550Amount to be recovered through periodic lease payments$70,450______________________Lease payments at the beginning of each of the next 5 years: ($70,450 ÷ 4.23972**)$ 16,617* present value of $1: n=5, i=9%** present value of an annuity due of $1: n=5, i=9%Situation 4Amount to be recovered (fair value) $465,000Less:Present value of the residual value ($45,000 x .40388*)(18,175Amount to be recovered through periodic lease payments$446,825______________________Lease payments at the beginning of each of the next 8 years: ($446,825 ÷ 5.56376**)$ 80,310* present value of $1: n=8, i=12%** present value of an annuity due of $1: n=8, i=12%

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INTM ACCT CH 15 ANSWERSExercise 15-13Situation1234A.The lessor’s:1.Minimum lease payments1$700,000$750,000$800,000$840,0002.Gross investment in the lease2700,000750,000850,000900,0003.Net investment in the lease3548,592547,137610,168596,764B.The lessee’s:4.Minimum lease payments4700,000750,000800,000840,0005.Leased asset5548,592547,137586,842572,5316.Lease liability6548,592547,137586,842572,5311($100,000 x number of payments) + residual value guaranteed by lessee and/orby third party; for situation 4: ($100,000 x 8) + ($40,000).2Minimum lease payments plus unguaranteed residual value; for situation 4:($840,000 + $60,000).3Present value of gross investment (discounted at lessor’s rate); for situation 4:($100,000 x 5.56376) + ($100,000 x .40388).4($100,000 x number of payments) + residual value guaranteed by lessee; forsituation 4: ($100,000 x 8) + $40,000.5Present value of minimum lease payments (discounted at lower of lessor’s rateand lessee’s incremental borrowing rate); should not exceed fair value; forsituation 4: ($100,000 x 5.56376) + ($40,000 x .40388).6Present value of minimum lease payments (discounted at lower of lessor’s rateand lessee’s incremental borrowing rate); should not exceed fair value; forsituation 4: ($100,000 x 5.56376) + ($40,000 x .40388).

INTM ACCT CH 15 ANSWERSExercise 15-14Situation 1Amount to be recovered (fair value) $60,000Less: