In: Accounting
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse
equipment from Builders, Inc. The lease agreement calls for
Georgia-Atlantic to make semiannual lease payments of $463,866 over
a 4-year lease term, payable each June 30 and December 31, with the
first payment at June 30, 2018. Georgia-Atlantic's incremental
borrowing rate is 11.0%, the same rate Builders used to calculate
lease payment amounts. Builders manufactured the equipment at a
cost of $2.6 million. (FV of $1, PV of $1, FVA of $1, PVA of $1,
FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from
the tables provided.)
Required:
1. Determine the price at which Builders is
“selling” the equipment (present value of the lease payments) at
June 30, 2018.
2. What amounts related to the lease would
Builders report in its balance sheet at December 31, 2018 (ignore
taxes)?
3. What amounts related to the lease would
Builders report in its income statement for the year ended December
31, 2018 (ignore taxes)?