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Benedict Company leased equipment to Mark Inc. on January 1, 2017. The lease is for an...

Benedict Company leased equipment to Mark Inc. on January 1, 2017. The lease is for an eight-year period, expiring December 31, 2024. The first of eight equal annual payments of $600,000 was made on January 1, 2017. Benedict had purchased the equipment on December 29, 2016, for $3,200,000. The lease is appropriately accounted for as a sales-type lease by Benedict. Assume that at January 1, 2017, the present value of all rental payments over the lease term discounted at a 10% interest rate was $3,520,000. Required: What amount of interest income should Benedict record in 2018 (the second year of the lease period) as a result of the lease?

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Answer #1

jan 2017 jan 2018 jan 2019 jan2020 jan2021 jan 2022 jan2023 jan2024

present value = 3520000 at jan 2017

at jan 2017 first installment did not consist of any interest , it is like a downpayment.

=600000*1+600000*.9091+600000*.8264+600000*.7513+600000*.683+600000*.6209+600000*.5645+600000*.5131

=3520980 is nearly to present value given above

2017

all rental payment =3520000

- sown payment =600000

balance payment 2920000

2018

balance payment 2920000

+interest@10% 292000

total 3212000

-installement 600000

balance amount 2612000

In 2018 interest income recorded by Benedict is $ 292000

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