Lampley inc. enters into a direct finance lease agreement, Ask an Expert

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Lampley, Inc. enters into a direct finance lease agreement as lessor on January 1, 2001, to lease an airplane to National Airlines. The term of the noncancelable lease is eight years and payments are required at the end of each year. The following information relates to this agreement:

National Airlines has the option to purchase the airplane for $8,000,000 when the lease expires at which time the fair value is expected to be $12,000,000.

The airplane has a cost of $25,000,000 to Lampley, an estimated useful life of fourteen years, and a salvage value of zero at the end of that time (due to technological obsolescence).

National Airlines will pay all executory costs related to the leased airplane.

Annual lease payments allow Lampley to earn an 8% return on its investment.

Collectibility of the payments is reasonably predictable, and there are no important uncertainties surrounding the costs yet to be incurred by Lampley.

Calculate the gross lease payment receivable to be recorded by Lampley upon inception of the lease?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9403866

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