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 $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.)

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