A lease agreement that qualifies as a finance lease calls for annual lease payme

Question

A lease agreement that qualifies as a finance lease calls for annual lease payments of $50,000 over a four-year lease term (also the asset’s useful life), with the first payment at January 1, the beginning of the lease. The interest rate is 8%. The lessor’s fiscal year is the calendar year. The lessor manufactured this asset at a cost of $129,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Required: a. Determine the price at which the lessor is “selling” the asset (present value of the lease payments).

b. Create a partial amortization through the first payment on January 1, 2017.

c. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?

Part B:

Part C:

What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?

Explanation / Answer

Income statement

Income

Interest revenue = 128855*.08 = 10308

Sales revenue 178855

Cost of goods sold -129000

Income effect 60163

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.