Facts for Questions 11 to 15 Pisa, Inc. leased equipment from Tower Company under an 8-year lease requiring equal annual payments of $296,134 on January 1 of each year, with the first payment due at lease inception, which was 1/1/2024. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 10-year useful life and is expected to have  residual value of $300,000 at the end of the lease. None of the residual value is guaranteed.  The fair market value of the equipment on 1/1/2024 is $2,000,000. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%. Present value factors are below.   PV Annuity Due PV Ordinary Annuity PV of Single Sum 8%, 8 periods 6.20637 5.74664 0.540269 10%, 8 periods 5.86842 5.33493 0.466507   Use these facts to answer questions 11 to 15 below.

What amount of lease liability will Pisa report on its 12/31/2024 balance sheet?

Describe a lessor’s accounting for an operating lease

Facts for Question 6 Tower Company leased equipment to Pisa, Inc.  under an 8-year lease requiring equal annual payments on January 1 of each year, with the first payment due at lease inception, which was 1/1/2024. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 10-year useful life and is expected to have residual value of $400,000 at the end of the lease. None of the residual value is guaranteed by Pisa.  The fair market value of the equipment on 1/1/2024 is $2,000,000. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease is 8%.  Present value factors are below.   PV Annuity Due PV Ordinary Annuity PV of Single Sum 8%, 8 periods 6.20637 5.74664 0.540269 10%, 8 periods 5.86842 5.33493 0.466507 What is the amount of the lease payment?

Facts for Questions 23 to 29 Tower Company leased equipment to Pisa, Inc.  under an 8-year lease requiring equal annual payments of $265,667 on January 1 of each year, with the first payment due at lease inception, which was 1/1/2024. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 10-year useful life and is expected to have residual value of $650,000 at the end of the lease. All of the residual value is guaranteed by Pisa.  The equipment was carried in Tower’s accounting records at a cost of $1,600,000. The fair market value of the equipment on 1/1/2024 is $2,000,000. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%.  Present value factors are below.   PV Annuity Due PV Ordinary Annuity PV of Single Sum 8%, 8 periods 6.20637 5.74664 0.540269 10%, 8 periods 5.86842 5.33493 0.466507   Use these facts to answer questions 23 to 29:

Provide brief (i.e., 1 or 2 sentence) answers to questions 1 to 5.

What amount of lease revenue will Tower recognize for the 12 months ended 12/31/2024? If no lease revenue recognized, enter $0.

What amount of sales revenue will Tower recognize on the transaction? If no sales revenue recognized, enter $0.

Facts for Questions 16 to 22 Tower Company leased equipment to Pisa, Inc.  under an 8-year lease requiring equal annual payments of $265,667 on January 1 of each year, with the first payment due at lease inception, which was 1/1/2024. The lease does not transfer ownership, nor is there a bargain purchase option. The equipment has a 10-year useful life and is expected to have residual value of $650,000 at the end of the lease. None of the residual value is guaranteed by Pisa.  The equipment was carried in Tower’s accounting records at a cost of $1,600,000. The fair market value of the equipment on 1/1/2024 is $2,000,000. Pisa, Inc.’s incremental borrowing rate is 10% and the rate implicit in the lease (which is known by Pisa, Inc.) is 8%.  Present value factors are below.   PV Annuity Due PV Ordinary Annuity PV of Single Sum 8%, 8 periods 6.20637 5.74664 0.540269 10%, 8 periods 5.86842 5.33493 0.466507   Use these facts to answer questions 16 to 22:

Explain how the lessee measures the lease liability and the related right-of-use asset at the beginning of the lease. Identify the way in which this measurement differs from the amount used in the “present value test.”