Karla Salons leased equipment from Smith Co. on July 1, 2018, in a finance lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2018. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $80,000.
-What amount of interest revenue from the lease should Smith Co. report in its December 31, 2018, income statement?

Question

Karla Salons leased equipment from Smith Co. on July 1, 2018, in a finance lease. The present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2018. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $80,000. 
-What amount of interest revenue from the lease should Smith Co. report in its December 31, 2018, income statement?

Quizplus · Accepted Answer

Interest revenue = (10% × 1/2 year × [$80,000 - 12,000]) = $3,400.

Karla Salons Leased Equipment from Smith Co