The following are the characteristics of a lease:
$$\begin{array} { | l | l | }
\hline \text { Fair value of leased asset } & 150,000 \
\hline \text { Lease payments30,500 } & 30,500 \
\hline \text { Lease term } & 7 \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { End of year } \
\hline \text { Guaranteed residual value } & \text { None } \
\hline \text { Interest rate implicit in lease } & 3 \% \
\hline
\end{array}$$ Requirement:
Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.

Question

The following are the characteristics of a lease:
 $$\begin{array} { | l | l | } 
\hline \text { Fair value of leased asset } & 150,000 \
\hline \text { Lease payments30,500 } & 30,500 \
\hline \text { Lease term } & 7 \
\hline \text { Payment frequency } & \text { Annual } \
\hline \text { Payment timing } & \text { End of year } \
\hline \text { Guaranteed residual value } & \text { None } \
\hline \text { Interest rate implicit in lease } & 3 \% \
\hline
\end{array}$$ Requirement:
Determine the present value of minimum lease payments (MLP)and the appropriate classification of this lease for the lessee.

Quizplus · Accepted Answer

The Answer is

\begin{array}{ll} ext { PV of MLP } & \$ 158,794 ext { \{Lease payments * PVFA (interest rate, lease term )\} } \ ext { Fair value of asset } & \underline{\$ 150,000} \ ext { PV of MLPas } \% ext { of fair value } &{100 \%}\end{array}

The present value of the MLP is greater than 90%,so this is a finance lease (not an operating lease)

The Following Are the Characteristics of a Lease Requirement: Determine the Present Value of Minimum Lease Payments (MLP)and

The Following Are the Characteristics of a Lease Requirement:
Determine the Present Value of Minimum Lease Payments (MLP)and