CHAPTER 15, 9 PLEASE READ: this is ONE question with 3 different parts, please a
ID: 2398855 • Letter: C
Question
CHAPTER 15, 9
PLEASE READ: this is ONE question with 3 different parts, please answer the FULL question, please TYPE your answer, please LABEL your answer.
On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. The lease agreement calls for Georgia- Atlantic to make semiannual lease payments of $468,683 over a 5-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 10.0%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment at a cost of $3.3 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. Determine the price at which Builders is "selling" the equipment (present value of the lease payments) at June 30, 2018. 2. What amounts related to the lease would Builders report in its balance sheet at December 31, 2018 (ignore taxes)? 3. What amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018 (ignore taxes)? (For all requirements, enter your answers in whole dollars and not in millions. Round your final answer to nearest whole dollar) Answer is complete but not entirely correct. 1. Present value $3,799,998 2 Amount to be reported in the balance sheet 166,566 Amount to be reported in the income statement 166,566Explanation / Answer
Part 1
468683 × 8.10782= $3799998
present value of an annuity due of $1: n= 10, i= 5%
2.Receivable at December 31, 2018
Receivable Initial balance, June 30, 2018... $3799998
June 30, 2018 reduction.............................. (468683)
Dec. 31, 2018 reduction (468683 - (5%*(3300000-468683)))........(327117)
December 31, 2018 receivable......... $3004198
Part 3
Income effect for year ended December 31, 2018
June 30, 2018 interest revenue............. $0
Dec. 31, 2018 interest revenue (5%*(3300000-468683)........ 141566
Interest revenue for 2018.................. $141566
Sales revenue..........................................3799998
Cost of goods sold..... (3,300,000)
Income effect................................... 641564
1. present value 3799998 2. amount to be reported in the balance sheet 3004198 3. amount to be reported in the income statement 641564