Question

On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement...

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 $545,210 over a four-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 equipment from Builders, Inc.. at a cost of $3.7 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?

(For all requirements, enter your answers in whole dollars and not in millions. Round your final answers to nearest whole dollar.)

Homework Answers

Answer #1
Year PV 5% Lease Payment PV Of Lease payment Date Payment Interest Lease lowered by Lease Receivable
0 1 545210 545210 30-Jun-18 3699999
1 0.9524 545210 519248 30-Jun-18 545210 0 545210 3154789
2 0.9070 545210 494522 31-Dec-18 545210 157739 387471 2767318
3 0.8638 545210 470973
4 0.8227 545210 448546 Balance Sheet of 31st December 2018
5 0.7835 545210 427186 Lease Receivable 2767318
6 0.7462 545210 406844 Income Statement
7 0.7107 545210 387471 Interest Income 157739
3699999
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