Question

Wilson Foods Corporation leased a commercial food processor on September 30, 2018. The five-year finance lease...

Wilson Foods Corporation leased a commercial food processor on September 30, 2018. The five-year finance lease agreement calls for Wilson to make quarterly lease payments of $234,929, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2018. Wilson’s incremental borrowing rate is 12%. Wilson records depreciation on a straight-line basis at the end of each fiscal year. Wilson recorded the lease as follows: September 30, 2018 Right-of-use asset (calculated below) 3,600,000 Lease payable (calculated below) 3,600,000 Lease payable 234,929 Cash (first payment) 234,929 Calculation of the present value of lease payments $234,929 × 15.32380* = $3,600,000 (rounded) *Present value of an annuity due of $1: n = 20, i = 3% Required: What would be the pretax amounts related to the lease that Wilson would report in its statement of cash flows for the year ended December 31, 2018? (Cash outflows should be indicated by a minus sign. Do not round your intermediate calculations. Enter your answers in whole dollars.)

Homework Answers

Answer #1
Statement of cash flows
$
Payment towards lease
Principal
On Sep 30. -234929
On Dec 31. (Note:2) -133977
Interest
On Sep 30. (Note:1) 0
On Dec 31. (Note:2) -100952
Total -469858
Note:1
Since lease payment is made at the beginning of the year,interest=0
Note:2
Quarterly lease payment=$ 234929
Lease payable outstanding as on Dec 31=Lease payable at the beginning of lease-Principal of lease paid on Sep 30=3600000-234929=$ 3365071
Interest=3365071*3%-$ 100952
Principal=Quarterly lease payment-Interest=234929-100952=$ 133977
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