Wilson Foods Corporation leased a commercial food processor on September 30, 2016. The five-year lease agreementcalls for Wilson to make quarterly lease payments of $195,774, payable each September 30, December 31,March 31, June 30, with the first payment at September 30, 2016. Wilson’s incremental borrowing rate is 12%. Wilsonrecords depreciation on a straight-line basis at the end of each fiscal year. Wilson recorded the lease as follows: September 30, 2016Asset (calculated below) ................................................................................... 3,000,000Lease payable (calculated below) .................................................................. 3,000,000Lease payable .................................................................................................. 195,774Cash (first payment) ...................................................................................... 195,774Calculation of the present value of lease payments$195,774 * 15.32380* = $3,000,000(rounded)*Present value of an annuity due of $1: n = 20, i = 3% (from Table 6)Required:What would be the pretax amounts related to the lease that Wilson would report in its statement of cash flows forthe year ended December 31, 2016?
Wilson Foods Corporation leased a commercial food processor on September 30, 2016. The five-year lease agreement
calls for Wilson to make quarterly lease payments of $195,774, payable each September 30, December 31,
March 31, June 30, with the first payment at September 30, 2016. Wilson’s incremental borrowing rate is 12%. Wilson
records
Asset (calculated below) ................................................................................... 3,000,000
Lease payable (calculated below) .................................................................. 3,000,000
Lease payable .................................................................................................. 195,774
Cash (first payment) ...................................................................................... 195,774
Calculation of the present value of lease payments
$195,774 * 15.32380* = $3,000,000
(rounded)
*Present value of an annuity due of $1: n = 20, i = 3% (from Table 6)
Required:
What would be the pretax amounts related to the lease that Wilson would report in its statement of
the year ended December 31, 2016?
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