On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Lea

Question

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $468,683 over a five-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc.. at a cost of $3.8 million. (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:
1. What pretax amounts related to the lease would IC report in its balance sheet at December 31, 2018?
2. What pretax amounts related to the lease would IC report in its income statement for the year ended December 31, 2018?

Explanation / Answer

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5% Year PV 5% Lease Payment PV Of Lease payment Date Payment Interest Lease lowered by Lease Receivable 0 1 468683 468683 30-Jun-18 3799998 1 0.952380952 468683 446365 30-Jun-18 468683 0 468683 3331315 2 0.907029478 468683 425109 31-Dec-18 468683 166566 302117 3029198 3 0.863837599 468683 404866 4 0.822702475 468683 385587 5 0.783526166 468683 367225 Balance Sheet of 31st December 2018 6 0.746215397 468683 349738 7 0.71068133 468683 333084 Lease Receivable 3029198 8 0.676839362 468683 317223 9 0.644608916 468683 302117 Income Statement 10 0.613913254 3799998 Interest Income 166566

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