Exercise 15-15 (Algo) Sales-type lease; lessor; income statement effects [LO 15-3]

Zhang Company leased equipment from Mann Industries. The lease agreement qualifies as a finance lease and requires annual lease payments of $58,696 over a six-year lease term (also the assets useful life), with the first payment on January 1, the beginning of the lease. The interest rate is 4%. The asset being leased cost Mann $270,000 to produce.

Note: Use tables, Excel, or a financial calculator. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1)

Required:

1. Determine the price at which the lessor is selling the asset (present value of the lease payments).
2. What would be the amounts related to the lease that the lessor would report in its income statement for the year ended December 31 (ignore taxes)?

1. Use a financial calculator to obtain the present value of the lease, using these: lease pmt: $58,696; n=6; i-4%. PV of Lease Payments is:
2. Create an income statement using these accounts: sales revenue, interest revenue, and cost of goods sold