Information has been gathered for two leases:

LEASE A

• The fair value of the equipment is $761,000 at the inception of the lease.
• The lease term is five years, and there is a three-year renewal term at the option of the lessor.
• Annual lease payments are $133,000 per year for the first five years and $114,000 for the next three years. Payments are due at the beginning of each lease year.
• All lease payments include the cost of insurance, estimated at $14,000 per year.
• The lessee has a residual guarantee value of $28,000 at the end of the eighth year.
• The lessee does not know the lessor’s implicit rate of interest in the lease. The lessee’s incremental borrowing rate is 9%.

LEASE B

• The fair value of the equipment is $628,000 at the inception of the lease.
• The lease term is five years.
• Annual lease payments are $133,000 per year. Payments are due at the beginning of each lease year.
• The lessee is offered a purchase option for the asset for $20,000 at the end of the lease term which is expected to be exercised.
• The lease payments include the cost of insurance, estimated at $8,000 per year.
• The lessor’s implicit rate of interest in the lease is 6% is known to the lessee. The lessee’s incremental borrowing rate is 9%.

(PV of $1, PVA of $1, and PVAD of $1.) (Use appropriate factor(s) from the tables provided.)

Required:
Calculate the present value of the right of use assets for each lease. (Do not round intermediate calculations. Round your final answers to the nearest whole dollar amount.)

A Lease --- Present value

B Lease-------

Answer rating: 100% (QA)

Lease A Present Value 136000 PVAD 0115 126000 PV... View the full answer