Question

This noncancelable lease had the following terms: Lease payments: $3,402,858 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025. Lease term: 5 years (10 semiannual payments). No residual value; no purchase option. Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 10% semiannually. Fair value of the computers at January 1, 2021: $23 million. What is the interest revenue that Technoid would report for this lease in its 2021 income statement

Answer 1

Answer:

$1,838,564

Explanation:

Calculation to determine the interest revenue that Technoid would report for this lease in its 2021 income statement

First step is to determine the interest for the first six months:l

Interest for the first six months=($23,000,000-$3,402,858)*5%

Interest for the first six months=$979,857

Second step is to Interest for the Second six months

Interest for the Second six months=($23,000,000 - $3,402,858 - [$3,402,858 - $979,857) × 5%

Interest for the Second six months=($19,597,142-2,423,001)*5%

Interest for the Second six months=$17,174,141*5%

Interest for the Second six months=$858,707

Now let determine the interest revenue

Interest revenue =$979,857+$858,707

Interest revenue =$1,838,564

Therefore the interest revenue that Technoid would report for this lease in its 2021 income statement is $1,838,564