Canarise Company leased equipment to Fulton Inc. on January 1, 2016. The lease i

Question

Canarise Company leased equipment to Fulton Inc. on January 1, 2016. The lease is for an eight year period expiring December 1, 2016. Canarsie had purchased the equipment on December 29, 2015, 4,800,000. The lease is appropriately accounted for as a sales type lease by Canarsie. Assume that the present value at January 1, 2016, of all rent payments over the lease term discounted at a 10 percent interest rate was $5,280,000. What amount of interest revenue should Canarsie record in 2017 (the second year of lease period) as a result of the lease? (Show your work)

Explanation / Answer

Year Annual Lease Payment PVIF@10% Present Value Interest Revenue 2016 989704.4128 0.9090909 899731.3 89973.13 2017 989704.4128 0.8264463 817937.5 171766.9 2018 989704.4128 0.7513148 743579.6 246124.8 2019 989704.4128 0.6830135 675981.4 313723 2020 989704.4128 0.6209213 614528.6 375175.8 2021 989704.4128 0.5644739 558662.3 431042.1 2022 989704.4128 0.5131581 507874.9 481829.6 2023 989704.4128 0.4665074 461704.4 528000 5.3349262 5280000 Present Value of all future lease payment A 5280000 PV factor @10% for 8 years B 5.334926 Annual Lease payment A/B 989704.4 Thus as per above table 2017 Interest revenue should be 171767

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