Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Com
ID: 2447710 • Letter: T
Question
Technoid Inc. sells computer systems. Technoid leases computers to Lone Star Company on January 1, 2013. The manufacturing cost of the computers was $17 million.
This non-cancelable lease had the following terms:
Lease payments: $3,002,038 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: 9% semi-annually
Fair value of the computers at January 1, 2013: $21 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.)
A) $0.
B) $3,115,234.
C) $1,579,821.
D)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 $17 million.
This non-cancelable lease had the following terms:
Explanation / Answer
The Correct Answer is Option (B)
The Working of interest revenue to be reported is as under:
Opening Balance as on 01.01.2013 $ 21,000,000 (Fair Value of the Computers)
Less Payment of Ist Instalment on 01.01.2013 3,002,038
Net Balance as on 01.01.2013 17,997,962
Add Interest @ 9% upto 30.06.2013 1,619,816
Less Payment of IInd instalment on 30.06.2013 3,002,038
Balance as on 01.07.2013 16,615,740
Interest @ 9% upto 31.12.2013 1,495,417
Therefore total interest reveneu to be reported on the lease during the calendar year 2013
= 1,619,817 + 1,495,417 = 3,115,234 $
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