Question

A finance lease agreement calls for quarterly lease payments of $7,392 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 12%. Both the present value of the lease payments and the cost of the asset to the lessor are $176,000.

Required:
a. Prepare a partial amortization table up to the October 1 payment.
b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1?

A.

Date	Lease Payment	Effective Rate	Decrease in balance	Outstanding balance
July 1				?
July 1	?	?	?
October 1	?	?	?

Part B

Interest expense (Lessee)	?
Interest Revenue (Lessor)	?

Answer 1

Answer:

a)Quarterly rate = 12 /4 = 3%     [4Quarters in a year]

	During the period	End
Date	Carrying Value at beginning	Payment	Interest paid	Principal repayment	carrying value of lease at end
1July	176000	7392	0	7392	162000-6500=155500
1oct	168608	7392	168608*.03=5058	7392-5058= 2334	155500-1835= 153665

b)

Interest expense for lessee = $ 5058
Interest revenue for lessor = $ 5058