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On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is...

On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as an operating lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in Year 1 on this lease?

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Answer #1
Interest revenue Savor will record in Year 1 = 0
Under an an operating lease, lease payments received are recognized as rental revenues and the Asset leased remains in the books of lessor.
As a result, only rental revenues will be recognized in Savor's books and no interest revenue will be recognized.
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