At the beginning of the year, a firm leased equipment on a capital lease, capita

Question

At the beginning of the year, a firm leased equipment on a capital lease, capitalizing $60,000 in its lease receivable account. The contract calls for Decem ber 31 payments of $15,000. The lessor's annual reporting period ends December 31 and the contract reflects 10% interest. The lessee made the first payment as required. The direct method statement of cash flows for the lessor should reflect which of the following in the first year of the lease contract (ignore noncash disclosure)?
a. $6,000 operating cash flow; $9,000 investing cash flow
b. $15,000 operating cash flow
c. $6,000 operating cash flow; $9,000 addition reconciling adjustment
d. $9,000 investing cash flow

Explanation / Answer

There is a cash inflows of 15,000. However, 10% of 60,000 which is $6000 is needed as interest payment. Interest payment will be considered an operating cash flows. THe rest of 9000 will be considered investment income and thus will be categorised as an investing cash flows. Thus. (A) is the correct answer. Hope this helps!

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