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 did Smith Co. record in its income statement for the reporting year ending December 31, 2018, in connection with the lease? (ignore taxes.)

Question

Quizplus · Accepted Answer

11ea937b_35de_1aa7_a419_b7c92b2bea33_TB2599_00 Interest revenue = (10% × 1/2 year × [$80,000 ? 12,000]) = $3,400.
Total revenue with regard to the lease = $14,000 profit + $3,400 interest revenue = $17,400.

Karla Salons Leased Equipment from Smith Co