Baxter Company leased equipment to Fritz Inc. on January 1, 2008. The lease is f

Question

Baxter Company leased equipment to Fritz Inc. on January 1, 2008. The lease is for an eight-year peri-od expiring December 31, 2015. The first of eight equal annual payments of $900,000 was made onJanuary 1, 2005. Baxter had purchased the equipment on December 29, 2007, for $4,800,000. Thelease is appropriately accounted for as a sales-type lease by Baxter. Assume that the present value atJanuary 1, 2008, of all rent payments over the lease term discounted at a 10 percent interest rate was$5,280,000. What amount of interest revenue should Baxter record in 2009 (the second year of thelease period) as a result of the lease?a.$490,000b.$480,000c.$438,000d.$391,800

Explanation / Answer

Baxter Company leased equipment to Fritz Inc. on January 1, 2008. The lease is f

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