Question

Bryant leased equipment that had a retail cash selling price of $620,000 and a useful life of five years with no residual value. The lessor paid $540,000 to acquire the equipment and used an implicit rate of 8% when calculating annual lease payments of $143,780 beginning January 1, the beginning of the lease. Lease payments will be made January 1 each year of the lease. Incremental costs of consummating the lease transaction incurred by the lessor were $16,000. What is the effect of the lease on the lessor's earnings during the first year (ignore taxes)? (Input decreases to income as negative amounts. Round Interest revenue to the nearest whole dollar.)

Answer 1

Answer:-

Lease:-

• An understanding of agreement that is set up to exchange the privilege to utilize the assets for a specific reason for stipulated time is called rent contract.
• The individual owning the asset is called lessor and the person,to whom right is transferred,is rent in deals compose rent ,the lessors gets benefit of merchant from offer of advantages.
• Here, the intrigue income is being produced over the rent term.
• This sort of leases has an extra benefit when the reasonable esteem surpasses the book estimation of the advantages sold.

What is the effect of the lease on the lessor's earnings during the first year (ignore taxes)?

Account details	Amount	Amount
January 1 interest revenue		$0
December 31 interest revenue		= [ $620,000 - $143,780 ] * 8% = $476,220 * 8% = $38,097.6
Interest revenue for the year :
Sales revenue	$620,000
Cost of goods sold	$540,000
Selling profit		= $620,000 - $540,000 = $80,000
Selling expense (starting direct cost )		$16,000
Increase in earnings		=  $38,097.6 + $80,000 - $16,000 = 118,097.6 - 16,000 = $102,097.6