On June 30, 2018, Georgia-Atlantic, Inc, eased warehouse equipment from IC Leasi

Question

On June 30, 2018, Georgia-Atlantic, Inc, eased warehouse equipment from IC Leasing Corporation. Georgia-Atlantic to make semiannual lease payments 31, with the first payment at June 30 2018. Georgia Atlantic's incremental borrowing rate is 9%, the same rate I lease payment amounts. IC purchased the warehouse from Builders, Inc. at a cost of $4.7 million. $1, FVAD of $1 and PVAD of $) (Use appropriate factor(s) from the tables provided.) of $681,881 over a four-year lease term, payable each June 30 and December used to calculate (FV of $1. PV of $1, FVA of $1, PVA of Required: 1. What pretax amounts related to the lease would IC report in its balance sheet at December 31, 2018? 2. What pretax amounts re lated to the lease would IC report in its income statement for the year ended December 31, 2018? enter your answers in whole dollars and not in millions. Round your final answers to nearest whole dollar) 1 Pretax amount of net receivable 2. Pretax amount of interest revenue

Explanation / Answer

1. Receivable at December 31, 2018

$681,881 x 6.8927009 ? = $4,700,000
(rounded)
? present value of an annuity due of $1: n=8, i=4.5%

Net
Receivable
Initial balance, June 30, 2018 $4,700,000
June 30, 2018 reduction (681,881)*
Dec. 31, 2018 reduction (501,065)**
December 31, 2018 net receivable $3,517,054

The receivable replaces the $4,700,000 machine on the balance sheet.

2. Interest revenue for year ended December 31, 2018

June 30, 2018 interest revenue $ 0*
Dec. 31, 2018 interest revenue 180,816**
Interest revenue for 2018 $180,816
Calculations:
June 30, 2018
Lease receivable (present value calculated above) 4,700,000
Inventory of equipment (lessor's cost) 4,700,000

Cash (lease payment) 681,881
Lease receivable* 681,881
receivable (difference)** 501,065
December 31, 2018
Cash (lease payment) 681,881
Lease

Interest revenue (4.5% x [$4,700,000 – 681,881]) 180,816

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