Subrnitted 213 8/2 On June 30, 2018, Georgia-Atlantic, Inc, leased warehouse equ

Question

Subrnitted 213 8/2 On June 30, 2018, Georgia-Atlantic, Inc, leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $779,224 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic's incremental borrowing rate is 9%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc.. at a cost of $4.2 million. (FV of $1, PV of $1, FVA of $1, PVA of $1. FVAD of $1 and PVAD of $1 (Use appropriate factor(s) from the tables provided.) Required: 1. What pretax amounts related to the lease would IC report in its balance sheet at December 31. 2018? 2. What pretax amounts related to the lease would IC report in its income statement for the year ended December 31, 2018? (For all requirements, enter your answers in whole dollars and not in millions. Round your final answers to nearest whole dollar) S 625,289 S 153,935 Pretax amount of net receivable 2. Pretax amount of interest revenue

Explanation / Answer

a. present Value of Lease Payments

present Value = Lease Payments * PVAD ( 4.5%, 6)

present Value = 779224 * 5.3900

present Value = $4200000

1. Pre tax amount of Net Receivable as on 12/31/2018

Pre tax amount of Net Receivable = Present Value - First Lease Payment - Second Lease Payment

Pre tax amount of Net Receivable = 4200000 - 779224 - (Second Lease Payment - Interest)

Pre tax amount of Net Receivable = 4200000 - 779224 - (779224 - 153935)

Pre tax amount of Net Receivable = $2795487

b. Pre tax amount of Interest Revenue = (Present Value - First Lease Payment) * Interest Rate

Pre tax amount of Interest Revenue = (4200000 - 779224 )* 4.50%

Pre tax amount of Interest Revenue = $153935

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