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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 $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 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.)


TABLE 5 Future Value of an Annuity Due of $1 (1 + i) FVAD= x (1 + i) [4.1.2) m/ 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0%TABLE 1 Future Value of $1 FV = $11 + i) i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11.0%TABLE 3 Future Value of an ordinary Annuity of $1 (1 + i) - 1 i FVA= mi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.TABLE 2 Present Value of $1 $1 PV = (1+1) w/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 7.0% 8.0% 9.0% 10.0% 11TABLE 6 Present Value of an Annuity Due of $1 1 (1+i) PVAD = X (1+i) i ndi 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5%TABLE 4 Present Value of an Ordinary Annuity of $1 1- (1+1) PVA = i n/i 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.

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Answer #1
Solution 1
Presnet Value of Lease payments
Total Semiannual Periods (4*2) 8
Incremental Borrowing Rate (11%/2) 5.50%
Semi-annual lease payment 463866
*cumulative PV factor for annuity due at 5.5% for 8 periods 6.68297
Presnet Value of Lease payments 3100003
Solution 2:
Amount to be reprted on balance sheet at December 31
Presnet Value of Lease payments 3100003
Add: Interest Revenue [(3100001-463866)*5.5%] 144988
less: Lease Payments (semiannual payment *2) 927732
Lease Receivables (Amount to be reported on Balance sheet) 2317259
Solution 3:
Amount to be reported in the income statement for Year ended Dec 31
Sale Revenue 3100003
Less: Cost of goods sold 2600000
Add: Interest revenue 144988
Amount to be reported in the income statement 644991
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