Question

NutraLabs, Inc., leased a protein analyzer to Werner Chemical, Inc., on September 30, 2018. NutraLabs manufactured the machine at a cost of $4.2 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $349,131, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2018. NutraLabs’ implicit interest rate is 8%. (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 NutraLabs is “selling” the equipment (present value of the lease payments) at September 30, 2018.
2. What pretax amounts related to the lease would NutraLabs report in its balance sheet at December 31, 2018?
3. What pretax amounts related to the lease would NutraLabs report in its income statement for the year ended December 31, 2018?
4. What pretax amounts related to the lease would NutraLabs report in its statement of cash flows for the year ended December 31, 2018?

NutraLabs, Inc., leased a protein analyzer to Werner Chemical, Inc., on September 30, 2018. NutraLabs manufactured the machine at a cost of $4.2 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $349,131, payable each September 30, December 31, March 31, June 30, with the first payment at September 30, 2018. NutraLabs' implicit interest rate is 8%. (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 NutraLabs is "selling" the equipment (present value of the lease payments) at September 30, 2018. 2. What pretax amounts related to the lease would NutraLabs report in its balance sheet at December 31, 2018? 3. What pretax amounts related to the lease would NutraLabs report in its income statement for the year ended December 31, 2018? 4. What pretax amounts related to the lease would NutraLabs report in its statement of cash flows for the year ended December 31, 2018? Complete this question by entering your answers in the tabs below. Req 1 to 3 Req 4 Determine the price at which NutraLabs is "selling" the equipment (present value of the lease payments) at September 30, 2018. What pretax amounts related to the lease would NutraLabs report in its balance sheet at December 31, 2018? What pretax amounts related to the lease would NutraLabs report in its income statement for the year ended December 31, 2018? (Round your intermediate and final answers to nearest whole dollar.) Show less 1. Present value 2. Net receivable Income effect

Answer 1

1)
Present value of lease payments = $349,131 x PVAD(2%,20)	$5,822,981
2)
Initial balance, September 30, 2018	$5,822,981
Less: Sept. 30, 2018 reduction	$349,131
Less: Dec. 31, 2018 reduction  ($349131 - ((5822981.38 - $349131) x 2%)	$239,654
December 31, 2018   Net receivable	$5,234,196
3)
Expenses for year ended December 31, 2018
Sept. 30, 2018 interest expense	$0
Dec. 31, 2018 interest expense (5822981.38 - $349131) x 2%)	$109,477
Interest Revenue for 2018	$109,477
4)
Interest Revenue	$109,477	cash inflows from operating activities.
Lease Receivables (349131+239653.99)	$588,785	cash inflows from investing activities