Jodie Company leased equipment from Kim Company on July 1, 2004, for an eight-ye

Question

Jodie Company leased equipment from Kim Company on July 1, 2004, for an eight-year period expiring June 30, 2012. Equal annual payments under the lease are $200,000 and are due on July 1 of each year. The first payment was made on July 1, 2004. the rate of interest contemplated by Jodie and Kim is 8%. The cash selling price of the equipment is $1,241,250 and the cost of the equipment on Kim's accounting records was $1,100,000. Assuming that the lease is appropriately recorded as a capital lease by Kim, what is the amount of profit on the sale and the interest income that Kim would record for the year ended December 31, 2004?Question 3 options:
a.$0 and $0 b. $0 and $41,650 c. $141,250 and $41,650 d. $141,250 and $49,650

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Explanation / Answer

Cash Selling Price of Equipment 1,241,250.00 Cost of Equipment 1,100,000.00 Profit on Sale 141,250.00 Cash Selling Price of Equipment 1,241,250.00 Less: First Lease Payment 200,000.00 Remaining Lease Liability 1,041,250.00 Annual Interest( 8% of 1041250) 83,300.00 Interest Expense for 6 months 41,650.00 Hence the answer is : c. 141,250 & 41,650.

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