Pye Company leased equipment to the Polan Company on July 1, 2011, for a ten-year period expiring June 30, 2021.Equal annual payments under the lease are $80,000 and are due on July 1 of each year.The first payment was made on July 1, 2011.The rate of interest contemplated by Pye and Polan is 9%.The cash selling price of the equipment is $560,000 and the cost of the equipment on Pye's accounting records was $496,000.Assuming that the lease is appropriately recorded as a sale for accounting purposes by Eby, what is the amount of profit on the sale and the interest revenue that Pye would record for the year ended December 31, 2011?

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Quizplus · Accepted Answer

The profit on the sale is the difference between the cash selling price and the cost of the equipment, which is $64,000 ($560,000 - $496,000). The interest revenue for the year is calculated on the outstanding lease receivable after the first payment, which is $480,000 ($560,000 - $80,000). The interest for half a year (July 1 to December 31) at 9% is $21,600 ($480,000 * 9% * 1/2).

Pye Company Leased Equipment to the Polan Company on July