The Following Are Some of the Characteristics of an Asset

question 52

Essay

The following are some of the characteristics of an asset available for lease:
$$\begin{array} { | l | l | } \hline \text { Fair value of leased asset } & 50,000 \\\hline \text { Lease term } & 3 \text { years } \\\hline \text { Payment frequency } & \text { Annual } \\\hline \text { Payment timing } & \text { Beginning of year } \\\hline \text { Guaranteed residual value } & 15,000 \\\hline \text { Interest rate implicit in lease (not known to lessee) } & 9 \% \\\hline \text { Lessee's incremental borrowing rate } & 3 \% \\\hline\end{array}$$ 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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Definitions:

Situationism

The theory that behavior is determined more by situations than by personality traits.

Locus Of Control

A psychological concept that refers to individuals’ beliefs about the extent to which outcomes in their lives are under their own control versus external forces.

Reciprocal Determinism

The theory posited by Albert Bandura that a person's behavior both influences and is influenced by personal factors and the social environment.

Thematic Apperception Test

A projective psychological test used to reveal a person's social drives or needs by their interpretation of a series of pictures of emotionally ambiguous situations.