Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 8-year period (the useful life of the asset) expiring June 30, 2023. The first of 8 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 6% (the appropriate interest rate) was $4,000,000. 43. Assuming that Sands, Inc. uses straight-line depreciation, what is the amount of depreciation and interest expense that Sands should record for the year ended December 31, 2015? a. $400,000 and $206,880 b. $250,000 and $103,440 c. $250,000 and $206,880 d. $240,000 and $103,440 44. What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2015? a. $500,000 and $206,880 b. $500,000 and $103,440 c. $1,300,000 and $206,880 d. $1,300,000 and $103,440
Metro Company, a dealer in machinery and equipment, leased equipment to Sands, Inc., on July 1, 2015. The lease is appropriately accounted for as a sales-type lease by Metro and as a capital lease by Sands. The lease is for a 8-year period (the useful life of the asset) expiring June 30, 2023. The first of 8 equal annual payments of $552,000 was made on July 1, 2015. Metro had purchased the equipment for $3,500,000 on January 1, 2015, and established a list selling price of $4,800,000 on the equipment. Assume that the present value at July 1, 2015, of the rent payments over the lease term discounted at 6% (the appropriate interest rate) was $4,000,000.
43. Assuming that Sands, Inc. uses straight-line
a. $400,000 and $206,880
b. $250,000 and $103,440
c. $250,000 and $206,880
d. $240,000 and $103,440
44. What is the amount of profit on the sale and the amount of interest revenue that Metro should record for the year ended December 31, 2015?
a. $500,000 and $206,880
b. $500,000 and $103,440
c. $1,300,000 and $206,880
d. $1,300,000 and $103,440
45. Roman Company leased equipment from Koenig Company on July 1, 2015, for an eight-year period expiring June 30, 2023. Equal annual payments under the lease are $600,000 and are due on July 1 of each year. The first payment was made on July 1, 2015. The rate of interest contemplated by Roman and Koenig is 6%. The cash selling price of the equipment is $3,723,750 and the cost of the equipment on Koenig’s accounting records was $3,300,000. Assuming that the lease is appropriately recorded as a sale for accounting purposes by Koenig, what is the amount of profit on the sale and the interest income that Koenig would record for the year ended December 31, 2015?
a. $0 and $0
b. $0 and $187,425
c. $423,750 and $187,425
d. $423,750 and $93,712.50
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