A lease agreement included the following provisions:Inception of the lease:1/1/2

Question

A lease agreement included the following provisions:Inception of the lease:1/1/2008Annual lease payments of $6,000 are due 12/31/2008, 12/31/2009, 12/31/2010Annual lease payments of $4,000 are due 12/31/2011, 12/31/2012, 12/31/2013The lease calls for a total of six lease payments.The lessor's implicit rate of return is 12%.The lease is a capital lease to the lessor.How much interest revenue is recognized in 2008 by the lessor, assuming a calendar-year fiscal year?a.$3,600b.$3,419c.$2,550d.$2,118

Explanation / Answer

Present Value of Lease at the 1/1/2008 = 6000/1.12 + 6000/1.12^2 + 6000/1.12^3 + 4000/1.12^4 + 4000/1.12^5 + 4000/1.12^6

Present Value of Lease at the 1/1/2008 = $ 21,249.29

Interest revenue is recognized in 2008 by the lessor = Present Value of Lease at the 1/1/2008 * lessor's implicit rate of return

Interest revenue is recognized in 2008 by the lessor = 21249.29*12%

Interest revenue is recognized in 2008 by the lessor = $ 2550

Answer

c.$2,550

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