Johnson Ltd enters into a lease agreement with Peterson Ltd under the following conditions: $$\begin{array} { | l | r | l | }
\hline \text { Duration of lease } & 10 \text { years } & \
\hline \text { Life of leased asset } & 12 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 8,000 & \
\hline \text { Lease payment } & \$ 6,500 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 7,000 & \text { per year (10 payments) } \
\hline
\end{array}$$ The lease may be cancelled only with the permission of the lessor.If the rate of interest implicit in the lease is 10%,what is the fair value of the asset at the inception of the lease,and is the lease a finance or operating lease?

Question

Johnson Ltd enters into a lease agreement with Peterson Ltd under the following conditions: $$\begin{array} { | l | r | l | } 
\hline \text { Duration of lease } & 10 \text { years } & \
\hline \text { Life of leased asset } & 12 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 8,000 & \
\hline \text { Lease payment } & \$ 6,500 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 7,000 & \text { per year (10 payments) } \
\hline
\end{array}$$ The lease may be cancelled only with the permission of the lessor.If the rate of interest implicit in the lease is 10%,what is the fair value of the asset at the inception of the lease,and is the lease a finance or operating lease?

Quizplus · Accepted Answer

The Answer of Johnson Ltd enters into a lease agreement with Peterson Ltd under the following conditions: $$\begin{array} { | l | r | l | } 
\hline \text { Duration of lease } & 10 \text { years } & \
\hline \text { Life of leased asset } & 12 \text { years } & \
\hline \text { Unguaranteed residual } & \$ 8,000 & \
\hline \text { Lease payment } & \$ 6,500 & \text { at lease inception } \
\hline \text { Annual lease payments (in arrears) } & \$ 7,000 & \text { per year (10 payments) } \
\hline
\end{array}$$ The lease may be cancelled only with the permission of the lessor.If the rate of interest implicit in the lease is 10%,what is the fair value of the asset at the inception of the lease,and is the lease a finance or operating lease?

Johnson Ltd Enters into a Lease Agreement with Peterson Ltd