Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Com

Question

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2013. The manufacturing cost of the computers was $20 million.

This non-cancelable lease had the following terms:

Lease payments: $2,845,176 semiannually; first payment at January 1, 2013; remaining payments at June 30 and December 31 each year through June 30, 2017.

Lease term: 5 years (10 semi-annual payments)

No residual value; no bargain purchase option

Economic life of equipment: 5 years

Implicit interest rate and lessee's incremental borrowing rate: 4% semi-annually

Fair value of the computers at January 1, 2013: $24 million

What is the interest revenue that Technoid would report on this lease in its 2013 income statement? (Round your answer to the nearest dollar.)

$796,197.

$1,612,427.

$0.

None of these is correct.

Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2013. The manufacturing cost of the computers was $20 million.

This non-cancelable lease had the following terms:

Explanation / Answer

Interest Revenue for 1st semi annual payment = (24000000 - 2845176)*4%

Interest Revenue for 1st semi annual payment = $846193

Principal Payment = 2845176-846193

Principal Payment = 1998983

Interest Revenue for 2nd semi annual payment = (24000000 - 2845176-1998983)*4%

Interest Revenue for 2nd semi annual payment = $766,234

Total Interest Revenue = 846193 + 766234

Total Interest Revenue = $ 1,612,427

Answer

$1,612,427

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