The document describes three finance lease situations where annual lease payments are made at the beginning of each year. It provides the lease term, lessor's rate of return known by the lessee, lessee's incremental borrowing rate, and fair value of the lease asset for each situation. The required task is to determine the amount of the annual lease payments calculated by the lessor and the right-of-use asset and lease liability amount the lessee would record for each situation.

1. Each of the three independent situations below describes a finance lease in which annual lease
payments are payable at the beginning of each year. The lessee is aware of the lessor's implicit
rate of return.
Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1,
FVAD of $1 and PVAD of $1)
Required:
a. & b. Determine the amount of the annual lease payments as calculated by the lessor and the
amount the lessee would record as a right-of-use asset and a lease liability, for each of the above
situations.
Note: Round your answers to the nearest whole dollar.
Situation
1 2 3
Lease term (years) 10 20 6
Lessor's rate of return
(known by lessee)
11% 9% 12%
Lessee's incremental
borrowing rate
12% 10% 11%
Fair value of lease
asset
$780,000 $1,160,000 $365,000