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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

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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

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