Cormorant Corp. manufactured equipment at a cost of $600,000 and leased it to Bo

Question

Cormorant Corp. manufactured equipment at a cost of $600,000 and leased it to Boreal Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset's economic life. Equal payments under the lease are $60,000 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The list selling price of the equipment is $750,000 and the implicit rate used by Cormorant is 8%. What amount of selling profit or loss should Cormorant report for the year ended December 31, 2019? Additional information: Present value of an annuity due of $1 for 8 periods at 8% Present value of an annuity due of $1 for 16 periods at 4% Present value of an annuity due of $1 for 16 periods at 8% 6.21 12.12 9.56 Multiple Choice O None of the above $26,400 $127,200 profit $227,400 loss

Explanation / Answer

Cost of manufactured of Equipment = $         6,00,000.00 Lease Amount = $                  60,000 Payable two time in a year Total lease year =                             8.00 Years Total lease Period =                         16.00 Periods Annual implicit rate used by corporate = 8% For the semi annual = 4% PV . Of the anuuity due of $ 1 for 16 periods at 4% = 12.12 So. Present Value of the Lease = $ 60,000 X 12.12 = $ 727,200 Profit on lease = Pv. Of the lease - Cost of the equipment Profit on lease = $ 727,200 - $ 600,000 Profit on lease = $ 127,200 Answer = Option c = $ 127,200 = Profit

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