Question

Derozan Corp. manufactured equipment at a cost of $366,953 and leased it to B Corp. on January 1, 2019 for an eight-year period expiring December 31, 2026. Eight years is considered a major part of the asset’s economic life. Equal payments under the lease are $59,980 and are due on January 1 and July 1 of each year. The first payment was made on January 1, 2019. The implicit rate used by Derozan is 8%. Additional information: Present value of an annuity due of $1 for 8 periods at 8% 6.21 Present value of an annuity due of $1 for 16 periods at 4% 12.12 What is the Debit to Lease receivable recorded by Derozan on January 1, 2019?

Answer 1

Answer: $‭726,957.6‬0

Explanation:

The debit to Lease Receivable is the present value of the payments to be made by B Corp. for the 8 years.

Payments are made twice a year so period is 16 periods.

Rate = 8% /2

= 4%

Present value = Payments * Present value of an annuity due factor, 16 periods, 4%

= 59,980 * 12.12

= $‭726,957.6‬0