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Karla Salons leased equipment from Smith Co
Karla Salons leased equipment from Smith Co. on July 1, 2018, in a finance lease. The
present value of the lease payments discounted at 10% was $80,000. Ten annual lease payments
of $12,000 are due each year beginning July 1, 2018. Smith Co. had constructed the equipment
recently for $66,000, and its retail fair value was $80,000.
What amount of interest revenue from the lease should Smith Co. report in its December 31,
2018, income statement?
A) $12,000.
B) $4,000.
C) $3,400.
D) $5,000.
Expert Solution
Given,
Lease receivable =80000- 12000
= 68000
Interest rate = 10%
Fraction of year= 6/12
So,
Interest revenue from the lease in December 31,2018= 68000* 10%* 6/12
= $3400
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