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On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made
On January 1, Year 1, Savor Corporation leased equipment to Spree Company. The lease term is 9 years. The first payment of $698,000 was made on January 1, 2018. The present value of the lease payments is $4,561,300. The lease is appropriately classified as an operating lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Savor record in Year 1 on this lease?
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Interest income for lessors A lessor's interest income is the difference between the sum of the total rentals due to the lessor and the initial carrying value of the lessor's receivable. Effectively, this is the price the lessor is charging for providing the lessee with the funding in relation to the right to use the physical asset. Under current lease accountinq quidance,interest income is recognised over the lease term. Under future lease accounting guidance (whether the model chosen is the de-recognition or the performance obligation model), interest income will also always be recognised over the lease term Present Value of Lease Rental As first payment of $698,000 was made on January 1, 2018. Net Effective Value for Interest Income- $4,561,300-$698,000 Net Effective Value for Interest Income $ 3,863,300.00 Total Interst on above @ 9% $347,697.00 Interest for first year-_347,697.00 9 Years Interest for first year- $38,633.00Step by Step Solution
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