A is corrent. The income recorded would be 10% of the present value of the lease receivable balance outstanding in year 2 (year 3). The interest can be computed using an amortization table. Notice that interest is accrued on December 31 of each year, and is paid the following day on January 1. | | | Cash
received | Interest
Income
Dr (Cr) | Interest
receivable | Amount of
payment
applied to
principal | Carrying value of
the lease
receivable | | 1/1/Y2 | | | | | | $3,520,000 | | 1/1/Y2 | | $600,000 | $ -- | | $600,000 | 2,920,000 | | 12/31/Y2 | Interest accrual | | (292,000) | $292,000 | -- | 2,920,000 | | 1/1/Y3 | | 600,000 | -- | (292,000) | 308,000 | 2,612,000 | | 12/31/Y3 | Interest accrual | | (261,200) | 261,200 | | 2,612,000
|
B is incorrect. The income recorded would be 10% of the present value of the lease receivable balance outstanding in year 2 (year 3). The interest can be computed using an amortization table. Notice that interest is accrued on December 31 of each year, and is paid the following day on January 1. | | | Cash
received | Interest
Income
Dr (Cr) | Interest
receivable | Amount of
payment
applied to
principal | Carrying value of
the lease
receivable | | 1/1/Y2 | | | | | | $3,520,000 | | 1/1/Y2 | | $600,000 | $ -- | | $600,000 | 2,920,000 | | 12/31/Y2 | Interest accrual | | (292,000) | $292,000 | -- | 2,920,000 | | 1/1/Y3 | | 600,000 | -- | (292,000) | 308,000 | 2,612,000 | | 12/31/Y3 | Interest accrual | | (261,200) | 261,200 | | 2,612,000
|
C is incorrect. The income recorded would be 10% of the present value of the lease receivable balance outstanding in year 2 (year 3). The interest can be computed using an amortization table. Notice that interest is accrued on December 31 of each year, and is paid the following day on January 1. | | | Cash
received | Interest
Income
Dr (Cr) | Interest
receivable | Amount of
payment
applied to
principal | Carrying value of
the lease
receivable | | 1/1/Y2 | | | | | | $3,520,000 | | 1/1/Y2 | | $600,000 | $ -- | | $600,000 | 2,920,000 | | 12/31/Y2 | Interest accrual | | (292,000) | $292,000 | -- | 2,920,000 | | 1/1/Y3 | | 600,000 | -- | (292,000) | 308,000 | 2,612,000 | | 12/31/Y3 | Interest accrual | | (261,200) | 261,200 | | 2,612,000
|
D is incorrect. The income recorded would be 10% of the present value of the lease receivable balance outstanding in year 2 (year 3). The interest can be computed using an amortization table. Notice that interest is accrued on December 31 of each year, and is paid the following day on January 1. | | | Cash
received | Interest
Income
Dr (Cr) | Interest
receivable | Amount of
payment
applied to
principal | Carrying value of
the lease
receivable | | 1/1/Y2 | | | | | | $3,520,000 | | 1/1/Y2 | | $600,000 | $ -- | | $600,000 | 2,920,000 | | 12/31/Y2 | Interest accrual | | (292,000) | $292,000 | -- | 2,920,000 | | 1/1/Y3 | | 600,000 | -- | (292,000) | 308,000 | 2,612,000 | | 12/31/Y3 | Interest accrual | | (261,200) | 261,200 | | 2,612,000
|
|
