Question

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 cost of $4.4 million (EV of 51. PV of St. PVA of $1. PVA of $1. EVAD of S1 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.) 1 2 Pretax amount of not receivable Pretax amount of interest revenue

Answer 1

Requirement #1)

Receivable after first installment on June 30, 2021:

= 4,400,000 - 648,358

= 3,751,642

Interest for next 6 months till Dec 31, 2021:

= 3,751,642 x 10% x 6/12

= 187,582.

Principal portion from the second lease installment :

= 648,358 - 187,582

= 460,776

Amount to be reported on the balance sheet:

Net receivable = 3,751,642−460,775 = $ 3,290,867

Requirement #2)

Interest income to be reported in income statement :

= $ 187,582(calculated above)