Each of the three independent situations below describes a finance lease in which annual lease payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit rate of return. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation
1 2 3
Lease term (years) 12 20 4
Lessor’s rate of return (known by lessee) 11% 9% 12%
Lessee’s incremental borrowing rate 12% 10% 11%
Fair value of leased asset $620,000 $1,000,000 $205,000
Required:
a. Determine the amount of the annual lease payments as calculated by the lessor and above situations.
b. Determine the amount lessee would record as a leased asset and a lease liability for above situations.

Answer is explained in the explanation section below.

Explanation:

Data Given:

Situations:

Lease Term years:

1. 12

2. 20

3. 4

Lessor’s rate of return (known by lessee):

1. 11%

2. 9%

3. 12%

Fair value of leased asset:

1. $620,000

2. $1,000,000

3. $205,000

a)  For Situation 1:

Here, lease is a financial agreement between two parties Lesse and Lessor.

So,

Formula for annual lease payments is:

Annual lease payments = Fair value of assets divided by Present value for annuity due.

Here,

we use the following data to calculate the annual payments.

Fair Value of Assets of the leased asset = $620,000

Lease term = 12 years

Lessor's rate of return = 11%

So, the present value of annuity due 12 years at the rate of 11% is 7.2065

Plugging in the values in the formula we get:

Annual lease payments =

Annual lease payments = $86,033.44

b)

Formula for the lease ability = Annual rent payment multiply by present value of annuity due.

So,

The annual rent payment is the same that we calculated above.

So,

the lease ability = $86,033.44 x 7.2065

the lease ability = $620,000

For Situation 2:

a)

Annual lease payments = Fair value of assets divided by Present value for annuity due.

we use the following data to calculate the annual payments.

Fair Value of Assets of the leased asset = $1,000,000

Lease term = 20 years

Lessor's rate of return = 10%

So, the present value of annuity due 20 years at the rate of 9% is 9.9501

Annual lease payments =

Annual lease payments = $100,501.35

b)

Formula for the lease ability = Annual rent payment multiply by present value of annuity due.

the lease ability = $100,501.35 x 9.9501

the lease ability = $1,000,000

For Situation 3:

a)

Annual lease payments = Fair value of assets divided by Present value for annuity due.

we use the following data to calculate the annual payments.

Fair Value of Assets of the leased asset = $205,000

Lease term = 4 years

Lessor's rate of return = 12%

So, the present value of annuity due 4 years at the rate of 12% is 3.4081

Annual lease payments =

Annual lease payments = $60,261.66

b)

Formula for the lease ability = Annual rent payment multiply by present value of annuity due.

the lease ability = $60,261.66 x 3.4801

the lease ability = $205,000

being born in poverty would limit the people's chances, opportunities and benefits.

this happen because of several things, such as:

- poor people tend to gain less access to good education and nutrition. this mean that their chance to obtain high paying jobs would also be limited.

- poor people tend to socialize with other poor people while the rich tend to socialize with other rich people. this means that simply throguh their social circle, rich people would have more business opportunities compared to the poor people.

- rich people tend to have more capital in their disposal. this would benefit them in business since it is far easier for them to fund their business operation compared to poor people.

answerjointly by the fed and by the behavior of individuals who hold money and of banks in which money is held;