Exhibit 20-4
On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows:

-Refer to Exhibit 20-4. What is the amount of the credit to Unearned Interest: Leases to be recorded by Average Leasing on January 1, 2016 round the answer to the nearest dollar)?

Question

Exhibit 20-4
On January 1, 2016, Average Leasing Company entered into a direct financing lease with a lessee, Lenny Company. The lease agreement calls for five equal annual payments of $75,000 at the beginning of each year with the first payment due on January 1, 2016. The leased property has an estimated residual value of $10,000, which Lenny does not guarantee. The property remains the property of Average at the end of the lease term. Average desires a 12% rate of return. Present value factors for a 12% interest rate are as follows:
 
-Refer to Exhibit 20-4. What is the amount of the credit to Unearned Interest: Leases to be recorded by Average Leasing on January 1, 2016 round the answer to the nearest dollar)?

Quizplus · Accepted Answer

The credit to Unearned Interest: Leases represents the total interest that will be earned over the lease term. This is calculated by subtracting the present value of the leased asset from the total lease payments to be received. Without the specific details from Exhibit 20-4, such as lease term, interest rate, and payment amounts, the correct answer cannot be directly calculated here. However, based on the question, the correct answer is provided as option D, $76,525.

Exhibit 20-4 on January 1, 2016, Average Leasing Company Entered into a into a Direct