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 $468,683 over a five-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 warehouse from Builders, Inc.. at a cost of $3.8 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?

Answer 1

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							5%
Year	PV 5%	Lease Payment	PV Of Lease payment		Date	Payment	Interest	Lease lowered by	Lease Receivable
0	1	468683	468683		30-Jun-18				3799998
1	0.952380952	468683	446365		30-Jun-18	468683	0	468683	3331315
2	0.907029478	468683	425109		31-Dec-18	468683	166566	302117	3029198
3	0.863837599	468683	404866
4	0.822702475	468683	385587
5	0.783526166	468683	367225		Balance Sheet of 31st December 2018
6	0.746215397	468683	349738
7	0.71068133	468683	333084		Lease Receivable	3029198
8	0.676839362	468683	317223
9	0.644608916	468683	302117		Income Statement
10	0.613913254
			3799998		Interest Income	166566