Solution 1:
Semiannual lease payment = $583,375
Total semiannual payments = 4*2 = 8
Incremental borrowing rate = 12%, 6% semiannual
Present value of minimum lease payments used to record right to use assets = Semi Annual lease payments * Cumulative PV Factor of annuity due for 8 periods at 6%
= $583,375 * 6.58238 = $3,839,996
Solution 2:
Semiannual payment on 30.06.2021 = $583,375
Pretax amount of liability on 30.06.2021 = ($3,839,996 - $583,375) = $3,256,621
Interest expense for 31.12.2021 = $3,256,621 * 6% = $195,397
Semiannual lease payment on 31.12.2021 = $583,375
Pre tax amount for liability December 31, 2021 = $3,256,621 + $195,397 - $583,375 = $2,868,643
Depreciation on right to use assets for 2021 = $3,839,996 / 4 * 6/12 = $480,000
Pre tax amount of right to use asset to be reported for 2021 = $3,839,996 - $480,000 = $3,359,996
Solution 3:
Pre tax amount of interest expense Georgia Atlantic Inc. reports in its income statement = $3,256,621 * 6% = $195,397
Pre tax amount of amortization expenses Georgia Atlantic Inc. reports in its income statement = $3,839,996 / 4 * 6/12 = $480,000
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