A finance lease agreement calls for quarterly lease payments of $7,200 over a 15

Question

A finance lease agreement calls for quarterly lease payments of $7,200 over a 15-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $169,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1?

Explanation / Answer

1)

1)

Date Lease payment Effective interest Decrease in balance Outstanding balance 1-Jul 169000 1-Jul 7200 7200 161800 1-Oct 7200 3236 3964 157836 (161800*8%/4) 2) Interest Expense for the second quarter on OCT 1 3236 (161800*8%/4)

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