A lease agreement calls for quarterly lease payments of $5,400 over a 15-year le

Question

A lease agreement calls for quarterly lease payments of $5,400 over a 15-year lease term, with the first payment at July 1, the lease’s inception. The interest rate is 12%. Both the fair value and the cost of the asset to the lessor are $151,000.

  

What would be the amount of interest expense the lessee would record in conjunction with the second quarterly payment at October 1?

What would be the amount of interest revenue the lessor would record in conjunction with the second quarterly payment at October 1?

What would be the amount of interest expense the lessee would record in conjunction with the second quarterly payment at October 1?

Period-End Lease Payment Interest Decrease in balance Outstanding balance Jul 01 $151,000 Jul 01 0 Oct 01 0

Explanation / Answer

Period-End Lease Payment Interest Decrease in balance Outstanding balance Jul-01 151000 Jul-01 5400 4530 870 150130 Oct-01 5400 4504 896 149234 Interest revenue 4504 Interest July 1 = 151000 X 12% X 3/12 = 4,530 Interest October 1 = 150130 X 12% X 3/12 = 4,504

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