Exhibit 21-4 On January 1, 2010, General Leasing Company entered into a direct financing lease with a lessee, Lee Company.The lease agreement calls for five equal annual payments of $60, 000 at the beginning of each year with the first payment due on January 1, 2010.The leased property has an estimated residual value of $10, 000, which Lee does not guarantee.The property remains the property of General at the end of the lease term.General desires a 12% rate of return.Present value factors for a 12% interest rate are as follows:
$\begin{array}{llr}
\text { Present value of $ \$ 1 $ for $ n=1 $} &0.892857\
\text { Present value of $ \$ 1 $ for $ n=5 $ } &0.567427\
\text { Present value of an ordinary annuity for $ n=5 $ } &3.604776\
\text { Present value of an annuity due for $ n=5 $ } &4.037349\

\end{array}$

- Refer to Exhibit 21-4.What is the amount of interest revenue that General should recognize on the lease for the year ended December 31, 2010? (Round the answer to the nearest dollar.

Question

Exhibit 21-4 On January 1, 2010, General Leasing Company entered into a direct financing lease with a lessee, Lee Company.The lease agreement calls for five equal annual payments of $60, 000 at the beginning of each year with the first payment due on January 1, 2010.The leased property has an estimated residual value of $10, 000, which Lee does not guarantee.The property remains the property of General at the end of the lease term.General desires a 12% rate of return.Present value factors for a 12% interest rate are as follows:
$\begin{array}{llr}
  \text {  Present value of \( \$ 1 $ for $ n=1 $} &0.892857\
 \text { Present value of $ \$ 1 $ for $ n=5 $ } &0.567427\
 \text { Present value of an ordinary annuity for $ n=5 $ } &3.604776\
 \text { Present value of an annuity due for $ n=5 $ } &4.037349\

\end{array}\)

- Refer to Exhibit 21-4.What is the amount of interest revenue that General should recognize on the lease for the year ended December 31, 2010? (Round the answer to the nearest dollar.

Quizplus · Accepted Answer

The first step is to calculate the present value of the minimum lease payments:
PV = $60,000 x 3.6048 (from the present value table) = $216,288

Next, we need to calculate the present value of the residual value:
PV of Residual Value = $10,000 x 0.5674 (from the present value table) = $5,674

Total present value = $221,962

Since General desires a 12% rate of return, the interest revenue can be calculated as follows:

Interest Revenue = Total Present Value x Rate of Return
= $221,962 x 12%
= $26,635.44

Thus, the answer is B) $22,550.

Exhibit 21-4 on January 1, 2010, General Leasing Company Entered