8 On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC L

Question

8 On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $530,475 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2018" Georgia-Atlantic's incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. IC purchased the warehouse from Builders, Inc. at a cost of $3.6 million. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of S1 and PVAD of $) (Use appropriate factor(s) from the tables provided.) 10 points Sklpped Required: 1. What pretax amounts related to the lease would IC report in its balance sheet at December 31, 2018? 2. What pretax amounts related to the lease would IC report in its income statement for the year ended December 31, 2018? eBook Hint Print References (For all requirements, 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 Mc Graw Hill

Explanation / Answer

Calculation of the present value of lease payments

530475 * 6.78637 = 3600000

Present value of an annuity due of $1: n = 8, i = 5%

1.

* Lease payment = 530475

Less- Interest expense = 5%*( 3600000 - 530475) = 153476.30

Lease payable = 376999

Right-of-Use Asset at December 31, 2018

Initial balance, June 30, 2018 = $3,600,000

Dec. 31, 2018 reduction = (450000) **

December 31, 2018 = 3,150,000

**Amortization expense ($3,600,000 / 4 years × ½ year) = 450000

2.

Expenses for year ended December 31, 2018

June 30, 2018 interest expense = $ 0

Dec. 31, 2018 interest expense= 153476.30*

Interest expense for 2018 = 153476.30

Amortization expense for 2018 = 450000

Total expenses = 603476.30

Initial balance, June 30, 2018 3600000 June 30, 2018 reduction (530475) Dec. 31, 2018 reduction (376999)* December 31, 2018 net receivable 2692526

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