Question

Company A is a car manufacturer. On January 1, Year 1, Company A leased a car to Company B for an 8-year period. The lease is appropriately accounted for as a sales-type lease by Company A. The useful life of the car is 10 years, and its carrying amount in Company A's financial statements was $100,000. The eight annual equal lease payments of $19,870 are payable at the end of each year, starting December 31, Year 1. The interest rate implicit in the lease is 10%. The fair value of the car at the inception of the lease equals the present value of the minimum lease payments. At the end of the lease term, Company B guarantees a residual value of $30,000. Information on present value factors is as follows: Present value of $1 at 10% for 8 periods 0.4665 Present value of an ordinary annuity of $1 at 10% for 8 periods 5.33493 Complete Company A's sales-type lease sheet using the information above. Enter the appropriate amounts in the shaded cells below. Enter all amounts as positive values. Round all amounts to the nearest dollar. If no entry is necessary, enter a zero (0)

1. The net investment in the lease account recognized by Company A on January 1, Year 1.

2. The amount of gross profit on the sale recognized by Company A in Year 1.

3. Total amount of interest income that Company A will earn over the lease period.

4. The amount of interest income on the lease recognized by Company A in year 1.

5. the amount of net investment in the lease account reported in company A's 12/31/Year1 balance sheet.

6. The amount of interest income on the lease recognized by Company A in year 2.

Answer 1