Here Are the Terms of a Lease Agreement Requirements:
A

question 23

Essay

Here are the terms of a lease agreement:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 250,000 \\\hline \text { Lease term } & 4 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { End of year } \\\hline \text { Guaranteed residual value } & 25,000 \\\hline \text { Interest rate implicit in lease (known to lessee) } & 14 \% \\\hline \text { Lessee's incremental borrowing rate } & 16 \% \\\hline\end{array}$$ Requirements:
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.
c.Compute the present value of minimum lease payments for the lessor.
d.Evaluate whether the lessee should classify the lease as operating or finance.

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