Question

Karla Salons leased equipment from Smith Co. on July 1, 2021, in a finance lease. The present value of the lease payments discounted at 10% was $81,100. Ten annual lease payments of $12,000 are due each year beginning July 1, 2021. Smith Co. had constructed the equipment recently for $66,000, and its retail fair value was $81,100.Under the new ASU, what amount of interest revenue from the lease should Smith Co. report in its December 31, 2016, income statement?
A- $12,000.
B- $4,000.
C- $3,400.
D- $5,000.

Answer 1

Answer:

C- $3,400

Explanation:

The Karla Salons has leased equipment from Smith Co. in a finance lease. The Smith Co will record the interest receivable from the Karla Salons in its income statement. The Karla Salons will record lease obligations in its balance sheet. Under the new ASU, the interest revenue which Smith Co. will record in its income statement is $3,400 for the year 2016.