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19 January, 03:21

A finance lease agreement calls for quarterly lease payments of $5,376 over a 10-year lease term, with the first payment on July 1, the beginning of the lease. The annual interest rate is 8%. Both the present value of the lease payments and the cost of the asset to the lessor are $150,000. Required: a. Prepare a partial amortization table up to the October 1 payment. b. What would be the amount of interest expense (revenue) the lessee (lessor) would record in conjunction with the second quarterly payment on October 1?

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  1. 19 January, 03:36
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    a. The preparation of partial amortization is shown below:-

    b. $2,892

    Explanation:

    a. Date Lease Effective Decrease in Outstanding

    payment interest balance balance

    July 1 $150,000

    July 1 $5,376 $5,376 $144,624

    ($150,000 - $5,376)

    Oct 1 $5,376 $2,892 $2,484 $142,140

    ($5,376 - $2,892) ($144,624 - $2,484)

    b. Interest expense on October 1 = $2,892

    Working Note:-

    Take the outstanding balance times 2% (8% annual = 2% quarterly)

    So, the Effective interest = $144,624 * 0.02

    = $2,892.48
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