On January 1,2016,Princess Corporation leased equipment to King Company.The lease term is eight years.The first payment of $675,000 was made on January 1,2016.The equipment cost Princess Corporation $3,600,000.The present value of the minimum lease payments is $3,960,000.The lease is appropriately classified as a sales-type lease.Assuming the interest rate for this lease is 10%,how much interest revenue will Princess record in 2017 on this lease?

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The interest revenue for 2017 is calculated on the outstanding lease receivable balance at the beginning of 2017. The initial lease receivable is $3,960,000. After the first payment of $675,000, the balance is $3,285,000. Interest for 2017 is 10% of $3,285,000, which is $328,500. However, the payment made at the beginning of 2017 reduces the principal, so the interest revenue is calculated on the reduced balance, resulting in $293,850.

On January 1,2016,Princess Corporation Leased Equipment to King Company