Question

On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment...

On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment at an annual pay-

ment of $10,254.19, receivable at the beginning of each year for 10 years. The first payment was received im-

mediately. The equipment has an estimated useful life of 12 years and no residual value. Lessor’s implicit rate

is 6%. Lessor had no other costs associated with this lease and properly classified the lease as a sales-type lease.

The leased equipment was carried on Lessor Inc.’s books at $65,000.

Required

a. Calculate the value of the lease receivable at the commencement of the lease.

b. What amounts would be presented in the balance sheet as of December 31, 2020, related to this lease?

c. What amounts would be presented in the income statement for the year ended December 31, 2020, related

to this lease?

Business   Accounting   
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Homework Answers

Answer #1
Implicit rate of interest =6%
Annual Lease paymnet at the start of the year =$10,254.19
PV Annuity factor for 9 payments @6%=(1-1.06^-9)/6%=                 6.80169
PV of Min Lease Payments
Cash flow Amt $ PV/PV Annuity factor PV of Cash flow
Lease paymnet Jan 1 2020             10,254.19                       1.00               10,254.19
Annual Lease paymnets Jan 1 on subsequent 9 years             10,254.19                6.80169               69,745.84
Total PV of Min Lease Payments               80,000.03
Ans a.
Value of the Lease Receivable at commencement of lease = $               80,000
Ans b.
Lease paymnet made on Jan 1,2020 $         10,254.19
Outstanding Lease Balance for 2020=80000-10254.19= $         69,745.84
Interest payable for 2020=69745.84*6%= $           4,184.75
Year Openinh Lease Bal Installment Interest Principal repaid Closing Loan Bal
                             1             80,000.00 $     10,254.19 0 $    10,254.19 $         69,745.81
                             2 $         69,745.81 $     10,254.19 $        4,184.75 $      6,069.44 $         63,676.37
                             3 $         63,676.37 $     10,254.19 $        3,820.58 $      6,433.61 $         57,242.76
Lessor Inc.
Balance Sheet (Partial )
As on Dec31,2020
Assets :
Current Assets:
Accrued Interest Income on Lease Receivable $           4,184.75
Lease Receivable : Current Portion $           6,069.44
Non Current Assets
Lease Receivable : Non Current Portion $         63,676.37
Ans c,
Lessor Inc.
Income Statement(partial)
for the year ended Dec 31,2020
Accrued Lease Interest Income $           4,184.75
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