Question

On June 30, 2021, Blue, Inc. leased a machine from Big Leasing Corporation. The lease agreement qualifies as a capital lease and calls for Blue to make semiannual lease payments of $298,341 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Blue’s incremental borrowing rate is 10%, the same rate Big uses to calculate lease payment amounts. The lease agreement qualifies as a sales-type lease without selling profit. Depreciation is recorded on a straight-line basis at the end of each fiscal year. (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 would be the amounts related to the lease that Big would report in its balance sheet at December 31, 2021? (Ignore income taxes.) (Round the PV of semi-annual lease payments to nearest thousand.) 2. What would be the amounts related to the lease that Big would report in its income statement for the year ended December 31, 2021? (Ignore income taxes.) (Rou and your answer to the nearest whole dollar amounts.)

1. Lease receivable

2. Interest revenue

Answer 1

solution

computaion of present value of lease payment

Date	Payment of Lease	PV @ 5% for 1( for semi-annual)	Present value
30.06.2021	298341	1	298341
31.12.2021	298341	0.95238	284134
30.06.2022	298341	0.90702	270604
31.12.2022	298341	0.86383	257718
30.06.2023	298341	0.82270	245446
31.12.2023	298341	0.78352	233757
TOTAL			1590000

1. Computation of Lease revenue

= $1291659 ($1590000 - $298341)

2. computaion of Interest revenue

= $645823 ($1590000 - $298341) x 5%