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What lessor will recognize a net investment in the lease

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Reference no: EM132749890

On January 1, 20x1, Entity X enters into a 3-year lease of equipment for an annual rent of $100,000 payable at the end of each year. The equipment has a remaining useful life of 10 years. The interest rate implicit in the lease is 10% while the lessee's incremental borrowing rate is 12%. Entity X uses the straight-line method of depreciation.

The relevant present value factors are as follows:

  1. PV of an ordinary annuity of $1 @10%, n=3............ 2.48685
  2. PV of an ordinary annuity of $1 @12%, n=3............ 2.40183

Problem 1: Assume the lease is a finance lease. The lessor will recognize a net investment in the lease at the lease commencement equal to

a. 248,685 .
b. 0.
c. 252,314.
d. 240,183.

Reference no: EM132749890

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