On January 1, 2016, Princess Corporation leased equipment to King Company. The l
ID: 2422285 • Letter: O
Question
On January 1, 2016, Princess Corporation leased equipment to King Company. The lease term is 12 years. The first payment of $744,000 was made on January 1, 2016. The equipment cost Princess Corporation $5,256,300. The present value of the minimum lease payments is $5,576,300. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2017 on this lease? (Round your answer to the nearest dollar.)
$453,163.
$260,770.
$457,153.
$483,230.
Please list step by step on how you arrived to the answer.
On January 1, 2016, Princess Corporation leased equipment to King Company. The lease term is 12 years. The first payment of $744,000 was made on January 1, 2016. The equipment cost Princess Corporation $5,256,300. The present value of the minimum lease payments is $5,576,300. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2017 on this lease? (Round your answer to the nearest dollar.)
Explanation / Answer
Calculation of Interest revenue for the year 2017:
Present value of the minimum lease payments
$ 5,576,300
Less: first payment on Jan 1, 2016
$ (744,000)
Balance as on Jan 1, 2016
$ 4,832,300
Add: Interest Revenue for the year 2016 = 4832300*10% =
$ 483,230
Less: Payment as on Jan 1, 2017
$ (744,000)
Balance as on Jan 1, 2017
$ 4,571,530
Interest Revenue for the year 2017 = 4571530*10% =
$ 457,153
Calculation of Interest revenue for the year 2017:
Present value of the minimum lease payments
$ 5,576,300
Less: first payment on Jan 1, 2016
$ (744,000)
Balance as on Jan 1, 2016
$ 4,832,300
Add: Interest Revenue for the year 2016 = 4832300*10% =
$ 483,230
Less: Payment as on Jan 1, 2017
$ (744,000)
Balance as on Jan 1, 2017
$ 4,571,530
Interest Revenue for the year 2017 = 4571530*10% =
$ 457,153