Reagan Company uses leases as a method of selling its products. In early 2009, Reagan completed construction of a passenger ferry. On January 1, 2030, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Based on the foregoing and the following terms, What is the total financial revenue that will be reported by Reagan over the lease term?
Reagan Company uses leases as a method of selling its products. In early 2009, Reagan completed construction of a passenger ferry. On January 1, 2030, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Based on the foregoing and the following terms, What is the total financial revenue that will be reported by Reagan over the lease term?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Reagan Company uses leases as a method of selling its products. In early 2009, Reagan completed construction of a passenger ferry. On January 1, 2030, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs. Based on the foregoing and the following terms, What is the total financial revenue that will be reported by Reagan over the lease term?
a.17,445,000
b. 19,245,000
c. 19,445,000
d. 22,000,000
Transcribed Image Text:Original cost of the ferry
Fair value of ferry at lease date
Lease payments (paid in advance)
Estimated residual value
Implicit interest rate
Date of first lease payment
Lease terms
Present value of an annuity due of 1 at 10% for 20 periods
Present value of 1 at 12% for 20 periods
12,555,000
1,500,000
2,000,000
12%
January 1, 2006
20 years
8.37
0.10
r
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