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On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment...

On January 1, 2020, the first day of its accounting year, Lessor Inc., leased certain equipment at an annual payment of $10,254.19, receivable at the beginning of each year for 10 years. The first payment was received immediately. The equipment has an estimated useful life of 12 years and no residual value. Lessor’s implicit rate is 6%. Lessor had no other costs associated with this lease and properly classified the lease as a sales-type lease. The leased equipment was carried on Lessor Inc.’s books at $65,000.


Required


a. Calculate the value of the lease receivable at the commencement of the lease.


b. What amounts would be presented in the balance sheet as of December 31, 2020, related to this lease?


c. What amounts would be presented in the income statement for the year ended December 31, 2020, related to this lease?

please provide correct answer!!

Solutions

Expert Solution

a) Calculation of the value of the lease receivable at the commencement of the lease.

Lease Receivable=Present value of Fixed lease Receipt at implicit rate

Years Cash Flow Present value Factor @6% Present Value
1 10254.19 0.943 9673.76
2 10254.19 0.890 9126.19
3 10254.19 0.840 8609.62
4 10254.19 0.792 8122.28
5 10254.19 0.747 7662.53
6 10254.19 0.705 7228.80
7 10254.19 0.665 6819.62
8 10254.19 0.627 6433.61
9 10254.19 0.592 6069.44
10 10254.19 0.558 5725.89
Total 75471.73

b)As para 36 of IAS 17 the lessor should record a finance lease in the balance sheet as a receivable, at an amount equal to the net investment in the lease.The amount of $ 75471.43 shall be recorded as asset in the balance sheet as on 31st December 2020.

c) Amount equal to $5725.89 ($10254.19-6% of $75471.73) shall be recorded as lease receivable in income statement and amount equal to 4528.3 (6% of $75471.73) shall be recorded as interest income in income statement for the year ended 31st December 2020.

ekkarill92 answered 2 years ago
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