CHAPTER 15 8 On June 30 2018 GeorgiaAtlantic Inc leased ware

CHAPTER 15, 8

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 $681,881 over a four-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 sam e rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc.. at a cost of $4.7 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.) 1. Pretax amount of net receivable 2. Pretax amount of interest revenue

Solution

Present value of lease payments =

= 681881 * 6.8927 = 4700000 (Rounded)

Present value of an annuity due of $1: n= 8, i= 4.50%

Receivable at December 31, 2018
	Receivable
Initial balance, June 30, 2018	4700000
June 30, 2018 reduction	(681881)*
Dec. 31, 2018 reduction	(501066)**
December 31, 2018 receivable	35,17,053