On January 1, 2016, Packard Corporation leased equipment to Hewlitt Company. The
ID: 2421797 • Letter: O
Question
On January 1, 2016, Packard Corporation leased equipment to Hewlitt Company. The lease term is 8 years. The first payment of $454,000 was made on January 1, 2016. Remaining payments are made on December 31 each year, beginning with December 31, 2016. The equipment cost Packard Corporation $2,221,900. The present value of the minimum lease payments is $2,461,900. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 13%, what will be the balance reported as a liability by Hewlitt in the December 31, 2017, balance sheet?
Explanation / Answer
PV of minimum lease payments = 2461900
Liabilty to be shown on 31st dec 2016 = 2461900 - (454000 - 2461900 x 13%)
= 2327947
Liabilty to be shown on 31st dec 2016 = 2327947 - (454000 - 2327947 x 13%)
= 2176580.11