Question

Sunshine Leasing purchased a construction equipment at a cost of$270,000 and leased it to Lance Company on January 1,2021.The lease agreement specified four annual payments of$50,000 beginning January 1,2021,the beginning of the lease,and at each December 31 thereafter through 2023.The useful life of the equipment is estimated to be six years.
On January 1,2023(after two years and three payments), Sunshine and Lance agreed to extend the lease term by two years.The market rate of interest at that time was 6%.The present value of these remaining three payments at a discount rate of 6% is$133,651.
After the modification of lease contract,the impact from modified lease contract on Sunshine's 2023 net income would be:
（Do not add dollar sign;do not add comma by yourself to your amount;round the answer to the whole number)

Answer 1

Construction Equipment at cost = $270000

Lease starting date = 1 January 2021

Annual payment = $50000 (four years)

(As on 1 January 2021, 1 payment remain and lease term extended for 2 year)

Present value of three payment 6% = $133651

Payment received = $50000 × 3 = $150000

Income = $150000 - $133651 = $16349

Sunshine's net income of 2023 = $16349/3 = $5449.66

Hence, sunshine's net income would be $5449.66.

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