On January 2, 2014, Orange Leasing Company leases equipment to Brick Co. with 5 equal annual...
On January 2, 2014, Orange Leasing Company leases equipment to Brick Co. with 5 equal annual payments of $80,000 each, payable beginning January 2 31, 2014. Brick Co. agrees to guarantee the $50,000 residual value of the asset at the end of the lease term. Brick’s incremental borrowing rate is 10%, however it knows that Orange's implicit interest rate is 8%. What amount of interest revenue, if any, does Orange report for 2014 assuming this lease is direct-financing lease?
Homework Answers
Answer:
Working:
Cash 80,000
Lease Receivable 299,224
Equipment 379,224
($80,000 x 4.31213) + ($50,000 x .68508) = $379,224.
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