Question

Bryant leased equipment that had a retail cash selling price of $750,000 and a useful life of six years with no residual value. The lessor spent $605,000 to manufacture the equipment and used an implicit rate of 8% when calculating annual lease payments of $150,219 beginning January 1, the beginning of the lease. Lease payments will be made January 1 each year of the lease. Incremental costs of consummating the lease transaction incurred by the lessor were $22,500. What is the effect of the lease on the lessor’s earnings during the first year, not including any effect of depreciation no longer required on the asset under lease (ignore taxes)? (Input decreases to income as negative amounts. Round Interest revenue to the nearest whole dollar.)

Answer 1

Answer: $‭170,482.48‬

Explanation:

Effect of lease:

= Sales - Cost of goods sold (cost to manufacture) + Interest revenue - Selling expense

Interest revenue = (Selling price - Interest paid) * Interest rate

= (750,000 - 150,219) * 8%

= $‭47,982.48‬

Effect of lease = 750,000 - 605,000 + 47,982.48‬ - 22,500

= $‭170,482.48‬