Marshall, Inc., leased equipment to Gadsby Company on January 1, 2011. The lease is for a five-year period ending January 1, 2016. The first equal annual payment of $1,200,000 was made on January 1, 2011. The cash selling price of the equipment is $5,174,552, which is equal to the present value of the lease payments at 8%. Marshall purchased the equipment for $4,300,000.
For 2011, Marshall should report interest revenue of

Question

Quizplus · Accepted Answer

The interest revenue for 2011 is calculated as the present value of the lease payments ($5,174,552) minus the first payment ($1,200,000), multiplied by the interest rate (8%). This gives ($5,174,552 - $1,200,000) * 8% = $317,964.