Baxter Company leased equipment to Fritz Inc. on January 1, 2011. The lease is for an eight-year period expiring December 31, 2018. The first of eight equal annual payments of $900,000 was made on January 1, 2011. Baxter had purchased the equipment on December 29, 2010, for $4,800,000. The lease is appropriately accounted for as a sales-type lease by Baxter. Assume that the present value at January 1, 2011, of all rent payments over the lease term discounted at a 10 percent interest rate was $5,280,000. What amount of interest revenue should Baxter record in 2012 (the second year of the lease period) as a result of the lease?

Question

Quizplus · Accepted Answer

The Answer of Baxter Company leased equipment to Fritz Inc. on January 1, 2011. The lease is for an eight-year period expiring December 31, 2018. The first of eight equal annual payments of $900,000 was made on January 1, 2011. Baxter had purchased the equipment on December 29, 2010, for $4,800,000. The lease is appropriately accounted for as a sales-type lease by Baxter. Assume that the present value at January 1, 2011, of all rent payments over the lease term discounted at a 10 percent interest rate was $5,280,000. What amount of interest revenue should Baxter record in 2012 (the second year of the lease period) as a result of the lease?

Baxter Company Leased Equipment to Fritz Inc