A lessor and lessee enter into a lease agreement with the following characteristics: Inception: 1/1/x0 annual lease payments of $10,000 are due each Jan.1 beginning 1/1/x0 End of lease term: 12/31/x5
Book value of equipment under lease, at inception: $35,000 Market value of equipment under lease, at inception: $50,000 Remaining useful life of equipment at inception: 9 yrs Expected residual value at end of lease term: $4,000
Interest rate used by lessor and lessee: 10%
Assuming the lessor will capitalize this lease, what is the amount of the net lease receivable for the lessor, before the first payment is made?

Question

Quizplus · Accepted Answer

The net lease receivable is the present value of the lease payments and the residual value, less the book value of the equipment. The present value of the lease payments is $47,908, and the present value of the residual value is $4,000. The book value of the equipment is $35,000. Therefore, the net lease receivable is $50,166.

A Lessor and Lessee Enter into a Lease Agreement with the Following