Canarsie Company leased equipment to Fulton Inc.on January 1,2014.The lease is for an eight-year period expiring December 31,2021.The first of eight equal annual payments of $900,000 was made on January 1,2014.Canarsie had purchased the equipment on December 29,2013,for $4,800,000.The lease is appropriately accounted for as a sales-type lease by Canarsie.Assume that the present value at January 1,2014,of all rent payments over the lease term discounted at a 10 percent interest rate was $5,280,000.What amount of interest revenue should Canarsie record in 2015 (the second year of the lease period)as a result of the lease?

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In the second year of the lease, Canarsie would recognize interest revenue based on the outstanding lease receivable at the beginning of the year. The initial lease receivable is the present value of the lease payments, $5,280,000. After the first payment of $900,000, a portion of this payment is interest (calculated from the initial receivable amount) and the rest reduces the principal of the lease receivable. The interest revenue for 2015 is calculated on the reduced lease receivable balance. Given the information, the correct calculation involves determining the interest portion for the second year, which aligns with option D, $391,800, when applying the 10% interest rate to the adjusted lease receivable after the first year's payment and interest allocation.

Canarsie Company Leased Equipment to Fulton Inc