LXR Leased to LXE a Computer That Cost the Lessor

question 210

Essay

LXR leased to LXE a computer that cost the lessor $15,000.The explicit interest rate is 15%; rentals are paid at each year-end; and the lease term is 3 years.Residual value at the end of the lease term is $3,000.Assume this is a direct financing lease.
Requirement 1: LXE retains the computer at the end of the lease term at a BPO cost of $2,000.
(a)The rental amount computed by lessor is, $ _.
(b)The amount the lessee should capitalize is, $ _.
Requirement 2: How much interest should be recognized at the end of year 1, in the above situation by the:
(a)lessor? $________
(b)lessee? $ _.
Requirement 3: At the end of year 1, in the above situation, how much would the principal be reduced for the
(a)lessor's lease receivable? $ and
(b)lessee's lease liability? $ .

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Definitions:

Standard Normal Distribution

A special case of the normal distribution with a mean of zero and a standard deviation of one.

Probability

A measure of the likelihood of a specific event or outcome, expressed as a number between 0 and 1.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much the individual values in a dataset deviate from the mean of the dataset.

Random Variable

A variable that can take on numerical results from a random event.