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Carla Vista Co

Accounting

Carla Vista Co. leased equipment from Koenig Co. on july 1, 2021 for an 8 year period expiring june 30, 2029. equal annual payments under the lease are $795,000 and are due on July 1 of each year. The first payment was made on July 1, 2021. The rate of interest contemplated by Carla vista and Koenig is 8%. The lease receivable before the first payment is $4,934,000 and the cost of the equipment on Koenig's accounting records was $4,350,000. assuming that the lease is appropriately recorded as a sale for accounting purposes by Koenig, what is the amount of profit on the sale and the interest income that Koenig would record for the year ended December 31,2021?

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Computation of Amount of Profit on the sale and the interest income that Koenig would record for the year ended December 31,2021:

Profit on Sale = Lease Receivable - Cost of Equipment

= $4,934,000 - $4,350,000

Profit on Sale = $584,000

 

Interest Income = (Lease Receivable - First Lease Payment) * Rate of Interest for Six Months

= ($4,934,000 - $795,000)*8%*6/12

Interest Income = $165,560

 

So, Amount of Profit on the sale is $584,000 and the interest income that Koenig would record for the year ended December 31,2021 is $165,560.

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