21. O n January 1, 2006, Princess Corporation leased equipment to King Company.

Question

21. O n January 1, 2006, Princess Corporation leased equipment to King Company. The lease is for 8 years. The first payment of $675,000 was made on January 1, 2006. The equipment cost Princess Corporation $3,600,000. The present value of the minimum lease payments is $3,960,000. The lease is appropriately classified as a sales-type lease Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2007 on this lease? A) $328,500. B) $325,350. C) $293,850. D) $261,000.

Explanation / Answer

Ans is 328,500

PV Of Minimum Lease Payment- Installment paid X Rate of Interest

3,960,000-675,000 X 10% =328,500

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