SOLVED

28) The following are some of the characteristics of an asset available for lease: Fair value of leased asset 88,000 Useful life 10 years Lease term 7 years Payment frequency Annual Payment timing Beginning of year Guaranteed residual value 10,000 Interest rate implicit in lease (not known to lessee) 10% Lessee’s incremental borrowing rate 8% Required: a. Determine the amount of lease payment that the lessor would require to lease the asset. b. Compute the present value of minimum lease payments for the lessee. 29) What is the implicit rate? A) The interest rate that the lessor would have to pay on a similar lease or loan. B) The interest rate that the lessee would have to pay on a similar lease or loan. C) The risk adjusted interest rate from the cash flow stream expected by the lessor. D) The risk adjusted interest rate from the cash flow stream expected by the lessee. 30) Under IFRS, assuming all information is available, which rate is used by the lessee in the minimum lease calculation? A) Implicit borrowing rate. B) Lessee’s incremental borrowing rate. C) Lower of the incremental and implicit rate. D) Either the incremental or implicit rate. 31) Which statement is correct for the lessee? A) Using the higher of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. B) Using the lower of the incremental or implicit rate maximizes the present value of the minimum lease payment calculation. C) Using the incremental rate maximizes the minimum lease payment calculation. D) Using the implicit rate maximizes the minimum lease payment calculation. 32) Which statement is correct for the lessee? A) If the minimum lease payments exceed fair value of the leased asset, the asset will be recorded on the balance sheet at the higher amount. B) If the minimum lease payments exceed fair value of the leased asset, the asset will be recorded on the balance sheet at the fair value amount. C) If the minimum lease payments are lower that the fair value of the leased asset, the asset will be recorded on the balance sheet at the unguaranteed residual value amount. D) If the minimum lease payments are lower that the fair value of the leased asset, the implicit rate must be used. 33) Under ASPE, assuming all information is available, which rate is used by the lessee in the lease present value calculations? A) Implicit borrowing rate. B) Lessee’s incremental borrowing rate. C) Lower of the incremental and implicit rate. D) Either the incremental or implicit rate. 34) For the following lease, determine the minimum present value calculation for the lessee. Annual payment (due at end of year) $23,104 Lease term 5 Incremental rate 10% Implicit rate (unknown to lessee) 8% Unguaranteed residual value NA Guaranteed residual value 20,000 A) 75,164 B) 78,636 C) 100,001 D) 105,859