Question
Roman Inc. sells computer systems. Roman leases computers to Rally Company on January 1, 2021. The manufacturing cost of the computers was $12 million. This
Roman Inc. sells computer systems. Roman leases computers to Rally Company on January 1, 2021. The manufacturing cost of the computers was $12 million.
This noncancelable lease had the following terms:
- Lease payments: $2,466,754 semiannually; first payment at January 1, 2021; remaining payments at June 30 and December 31 each year through June 30, 2025.
- Lease term: five years (10 semiannual payments).
- No residual value; no purchase option.
- Economic life of equipment: five years.
- Implicit interest rate and lessee's incremental borrowing rate: 5% semiannually.
- Fair value of the computers at January 1, 2021: $20 million.
What is the interest revenue that Roman would report for this lease in its 2021 income statement?
A. $0.
B. $1,673,820.
C. $876,662.
D. None of these answer choices is correct.
Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.
Payment | Cash Payment | Effective Interest | Decrease in balance | Outstanding Balance | ||||||||
|
|
|
|
|
|
|
|
|
|
| 63,282 |
|
| 1 |
| 10,000 |
| 0 |
|
| 10,000 |
|
| 53,282 |
|
| 2 |
| 10,000 |
| 6,394 |
|
| 3,606 |
|
| 49,676 |
|
| 3 |
| 10,000 |
| 5,961 |
|
| 4,039 |
|
| 45,638 |
|
| 4 |
| 10,000 |
| 5,477 |
|
| 4,523 |
|
| 41,114 |
|
| 5 |
| 10,000 |
| 4,934 |
|
| 5,066 |
|
| 36,048 |
|
| 6 |
| 10,000 |
| 4,326 |
|
| 5,674 |
|
| 30,373 |
|
| 7 |
| 10,000 |
| 3,645 |
|
| 6,355 |
|
| 24,018 |
|
| 8 |
| 10,000 |
| 2,882 |
|
| 7,118 |
|
| 16,901 |
|
| 9 |
| 10,000 |
| ? |
|
| ? |
|
| ? |
|
| 10 |
| 10,000 |
| ? |
|
| ? |
|
| ? |
|
What is the outstanding balance after payment 9?
A. $5,000.
B. $13,463.
C. $8,929.
D. $5,537.
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