Exercise 15-4 (Algo) Sales-type lease; lessor; balance sheet and income statement effects [LO15-2]
On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse
equipment from IC Leasing Corporation. The lease agreement calls
for Georgia-Atlantic to make semiannual lease payments of $403,067
over a five-year lease term (also the asset’s useful life), payable
each June 30 and December 31, with the first payment at June 30,
2021. Georgia-Atlantic's incremental borrowing rate is 8%, the same
rate IC used to calculate lease payment amounts. IC purchased the
equipment from Builders, Inc. at a cost of $3.4 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 amount related to the lease would
IC report in its balance sheet at December 31, 2021?
2. What pretax amount related to the lease would
IC report in its income statement for the year ended December 31,
2021?
(For all requirements, enter your answers in whole dollars
and not in millions. Round your final answers to the nearest whole
dollar.)
Solution 1:
Semiannual lease payment = $403,067
Total semiannual payments = 5*2 = 10
Incremental borrowing rate = 8%, 4% semiannual
Present value of minimum lease payments = Semi Annual lease payments * Cumulative PV Factor of annuity due for 10 periods at 4%
= $403,067 * 8.435332 = $3,400,003
Semiannual payment on 30.06.2021 = $403,067
Amount receivable on 30.06.2021 = ($3,400,003 - $403,067) = $2,996,936
Interest revenue for 31.12.2021 = $2,996,936 * 4% = $119,877
Semiannual lease payment on 31.12.2021 = $403,067
Pre tax amount of net receivables IC report in its balance sheet at December 31, 2021 = $2,996,936 + $119,877 - $403,067 = $2,713,746
Solution 2:
Pre tax amount of interest revenue IC report in its income statement for year ended Dec 31, 2021 = $2,996,936 * 4% = $119,877
Exercise 15-4 (Algo) Sales-type lease; lessor; balance sheet and income statement effects [LO15-2] On June 30,...
E 15-5 Sales-type lease; lessor; balance sheet and income statement effects LO15-3 On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia- Atlantic's incremental borrowing rate is 10%, the same rate Builders used to calculate lease payment amounts. Builders...
Exercise 15-3 (Algo) Finance lease; lessee; balance sheet and
income statement effects [LO15-2]
On June 30, 2021, Georgia-Atlantic, Inc. leased a warehouse
equipment from IC Leasing Corporation. The lease agreement calls
for Georgia-Atlantic to make semiannual lease payments of $464,149
over a four-year lease term, payable each June 30 and December 31,
with the first payment at June 30, 2021. Georgia-Atlantic's
incremental borrowing rate is 8%, the same rate IC uses to
calculate lease payment amounts. Amortization is recorded on...
Exercise 15-3 Finance lease; lessee; balance sheet and income statement effects (LO15-2] On June 30, 2018, Georgia Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia Atlantic to make semiannual lease payments of $562.907 over a three-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 uses to calculate lease payment amounts. Depreciation is...
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Exercise 15-3 Finance lease; lessee; balance sheet and income
statement effects [LO15-2]
On June 30, 2018, Georgia-Atlantic, Inc., leased a warehouse
facility from IC Leasing Corporation. The lease agreement calls for
Georgia-Atlantic to make semiannual lease payments of $509,761 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 8%, the same rate IC uses to calculate lease
payment amounts. Depreciation is recorded on a...
On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term (also the asset’s useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. at a cost of $3 million....
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On June 30, 2021, Georgia Atlantic, Inc. leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia Atlantic to make semiannual lease payments of $648 358 over a four-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. at a...
On June 30, 2021, 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 (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. at a cost of $3.8 million....
On June 30, 2021, Georgia-Atlantic, Inc, leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $576,798 over a five-year lease term (also the asset's useful life), payable each June 30 and December 31, with the first payment at June 30, 2021. Georgia-Atlantic's incremental borrowing rate is 12%, the same rate IC used to calculate lease payment amounts. IC purchased the equipment from Builders, Inc. at a cost of $4.5 million....