Question

# Ayayai Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it...

Ayayai Inc. manufactures an X-ray machine with an estimated life of 12 years and leases it to Chambers Medical Center for a period of 10 years. The normal selling price of the machine is \$487,263, and its guaranteed residual value at the end of the non-cancelable lease term is estimated to be \$14,500. The hospital will pay rents of \$59,000 at the beginning of each year. Ayayai incurred costs of \$273,000 in manufacturing the machine and \$13,000 in legal fees directly related to the signing of the lease. Ayayai has determined that the collectibility of the lease payments is probable and that the implicit interest rate is 5%.

Discuss the nature of this lease in relation to the lessor.

The nature of this lease in relation to the lessor is

finance leasesales-type leaseoperating lease

.

Compute the amount of each of the following items. (Round present value factor calculations to 5 decimal places, e.g. 1.25124 and the final answers to 0 decimal places, e.g. 5,275.)
 (1) Lease receivable at commencement of the lease \$ (2) Sales price \$ (3) Cost of sales \$
Prepare a 10-year lease amortization schedule for Ayayai, the lessor. (Round answers to 0 decimal places e.g. 5,275.)
 AYAYAI INC. (Lessor) Lease Amortization Schedule (Annuity due basis, guaranteed residual value) Beginning of Year Annual Lease Payment Plus Residual Value Interest on Lease Receivable Recovery of Lease Receivable Lease Receivable Initial PV \$ \$ \$ \$ 1 2 3 4 5 6 7 8 9 10 End of 10 \$ \$ \$

(1)

 Year Cash flows PV@5% Discounted value 0 72,000 [ 59,000 + 13,000] 1 72,000 1-9 59,000 7.1078 419,360 10 14,500 0.6139 8,902 500,262

(2) Sales price = 487,263

(3) Cost of sales = 273,000 + 13,000 = 286,000

Lease Amortization schedule

 Beginning of year Annual lease payment plus residual value Interest Receovery of lease receivable Lease receivable Initial PV 487,263 0 59,000 0 59,000 428,263 1 59,000 21,413 37,587 390,676 2 59,000 19,534 39,466 351,210 3 59,000 17,561 41,439 309,771 4 59,000 15,489 43,511 266,200 5 59,000 13,310 45,690 220,510 6 59,000 11,026 47,974 172,536 7 59,000 8,627 50,373 122,163 8 59,000 6,108 52,892 69,271 9 59,000 3,464 55,536 13,735 10 14,500 765 13,735 0

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