Question

21. On January 1, 2018, Queen Corporation leased equipment to King Company. The lease term is...

21. On January 1, 2018, Queen Corporation leased equipment to King Company. The lease term is six years. The first payment of $800,000 was made on January 1, 2018. The equipment cost Queen Corporation $3,600,000. The present value of the lease payments is $3,994,168. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 8%, how much interest revenue will Queen record in 2019 on this lease?

a. 211,976

b. 255,533

c. 281,096

d. 319,533

23. On January 1, 2018, Pink Co. recorded a right-of-use asset of $253,130 in an operating lease. The lease calls for ten annual payments of $40,000 at the beginning of each year. The interest rate charged by the lessor was 12%. The balance in the right-of-use asset at December 31, 2018, will be:

a. 213,130

b. 227,817

c. 238,706

d. 243,506

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Answer #1

Answer:

21) Option (A) $211976 is correct

Pariculars Amount ($)
Prsent value of lease payments 3,994,168
Less: Payment as on 1st Jan 2018 (800,000)
3,194,168
Interest @ 8% for 2018 255,533
2nd payment 800,000
Less: Interest (255,533)
Reduced balance 544,467
3rd payment 3,194,168
Less: Interest (544,467)
Liability as on 1st jan 2019 2,649,701
Interest @ 8% for 2019 211,976

23) Option (C) $238,706

Balance of lease on 1 Jan 2018 (A) 253130
Less: Installment paid 40000
213130
Interest (213130*12%) 25576
Amount to be amortize (B) (40000-25576) 14424
Year end balance (A-B) 238706
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