Amazon leased equipment from United Machines on July 1, 2020, in a finance lease. The present...

Amazon leased equipment from United Machines on July 1, 2020, in a finance lease. The present value of the lease payments discounted at 10% was $82,000. Ten annual lease payments of $12,000 are due each year beginning July 1, 2020. United Machines had constructed the equipment recently for $66,000. What net effect did the lease have on the income statement of United Machines for the year ending December 31, 2020? Ignore taxes. a. $23,000 b. $0 c. $16,000 d. $19,500 e. $3,500

Expert Solution

Answer

Calculate interest revenue December 31, 2021
Interest revenue	(82000-12000)10%(1/2)
Interest revenue	$ 3,500

Profit on sale	82000-66000
Profit on sale	$ 16,000

Amount reported in income statement	3500+16000
Amount reported in income statement	$ 19,500

Thus, amount Smith co record in income statement is $19,500
Option D : $19,500

ekkarill92 answered 2 years ago

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