Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The lease is properly accounted for as a finance lease by the lessee and as a sales-type lease by the lessor. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2019. The effective interest rate for the lease is 9%. The present value of the payments is $350,000 at the beginning of the new lease. The cost of the equipment on Stovall’s accounting records was $310,000. What amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2019?
Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The lease is properly accounted for as a finance lease by the lessee and as a sales-type lease by the lessor. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2019. The effective interest rate for the lease is 9%. The present value of the payments is $350,000 at the beginning of the new lease. The cost of the equipment on Stovall’s accounting records was $310,000. What amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2019?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Stovall Industries leased equipment to Arnett Manufacturing on July 1, 2019, for a ten-year period expiring June 30, 2029. The lease is properly accounted for as a finance lease by the lessee and as a sales-type lease by the lessor. The terms of the lease agreement require equal annual payments of $50,000 on July 1 of each year, starting in 2019. The effective interest rate for the lease is 9%. The present value of the payments is $350,000 at the beginning of the new lease. The cost of the equipment on Stovall’s accounting records was $310,000. What amount of profit on the sale and interest revenue would Stovall record for the year ended December 31, 2019?
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