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 $604,355 over a 5-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 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $4.4 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. Determine the price at which Builders is
“selling” the equipment (present value of the lease payments) at
June 30, 2021.
2. What amount related to the lease would Builders
report in its balance sheet at December 31, 2021 (ignore
taxes)?
3. What line item amounts related to the lease
would Builders report in its income statement for the year ended
December 31, 2021 (ignore taxes)?
(For all requirements, enter your answers in whole dollars
and not in millions. Round your final answer to the nearest whole
dollar.)
Answer-1:
Present value = $604,355 * 8.10782 = $4,900,003
Answer-2:
Pretax net receivable = $3,906,075
Explanation:
Answer-3:
Total pretax effect on net income = $214,782
Explanation:
On June 30, 2021, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement calls...
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 $463,866 over
a 4-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 11.0%, the same
rate Builders used to calculate lease payment amounts. Builders
manufactured the equipment at a cost of $2.6 million. (FV of $1, PV...
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 $463,866 over
a 4-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 11.0%, the same
rate Builders used to calculate lease payment amounts. Builders
manufactured the equipment at a cost of $2.6 million. (FV of $1, PV...
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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 $604,355 over a 5-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 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $4.4 million. (FV of $1,...