The fiscal year for both companies ends December 31. • The lease agreement specified quarterly payments of $3,700 beginning September 30, 2024, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term). • The florist had the option to purchase the truck on September 29, 2026, for $7,400 when it was expected to have a residual value of $12,100. The estimated useful life of the truck is four years. • Mid-South Auto Leasing's quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $30,880 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows' incremental interest rate is 12% int A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (l.e., a BPO). te: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1 EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) equired: 1. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due)
The fiscal year for both companies ends December 31. • The lease agreement specified quarterly payments of $3,700 beginning September 30, 2024, the beginning of the lease, and each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term). • The florist had the option to purchase the truck on September 29, 2026, for $7,400 when it was expected to have a residual value of $12,100. The estimated useful life of the truck is four years. • Mid-South Auto Leasing's quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid $30,880 for the truck. Both companies use straight-line depreciation or amortization. Anything Grows' incremental interest rate is 12% int A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (l.e., a BPO). te: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1 EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1) equired: 1. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments represent an annuity due)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:The fiscal year for both companies ends December 31.
• The lease agreement specified quarterly payments of $3,700 beginning September 30, 2024, the beginning of the lease, and
each quarter (December 31, March 31, and June 30) through June 30, 2027 (three-year lease term).
• The florist had the option to purchase the truck on September 29, 2026, for $7,400 when it was expected to have a residual
value of $12,100.
• The estimated useful life of the truck is four years.
• Mid-South Auto Leasing's quarterly interest rate for determining payments was 3% (approximately 12% annually). Mid-South paid
$30,880 for the truck.
. Both companies use straight-line depreciation or amortization.
.
Anything Grows' incremental interest rate is 12%.
Hint: A lease term ends for accounting purposes when an option becomes exercisable if it's expected to be exercised (l.e., a BPO).
Note: Use tables, Excel, or a financial calculator. (EV of $1. PV of $1. EVA of $1. PVA of $1. EVAD of $1 and PVAD of $1)
Required:
1. Calculate the amount of selling profit that Mid-South would recognize in this sales-type lease. (Be careful to note that, although
payments occur on the last calendar day of each quarter, since the first payment was at the beginning of the lease, payments
represent an annuity due.)
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