question archive Abbott Equipment leased a protein analyzer to Werner Chemical Inc
Abbott Equipment leased a protein analyzer to Werner Chemical Inc
Subject:AccountingPrice:3.87 Bought7
Abbott Equipment leased a protein analyzer to Werner Chemical Inc. on September 30,2018. Abbott purchased the machine from NutraLabs,inc. at a cost of $6.5 million. The five-year lease agreement calls for Werner to make quarterly lease payments of $424,177 payable each September 30, December 31, March 31, June 30, with the first payment at September 30h,2018. Abbott's implicit interest rate is 16%.
What pretax amounts related to the lease would Abbott report in its statement of cash flows for the year ended December 31 2018?
Finance Lease= ????
Interest Portion= ????
Principle Portion= ????
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Answer:
Finance Lease $5,995,292
Interest Portion $222,845
Principle Portion $625,509
Explanation:
Lease receivable :
Present value of lease payments = $424,177 × PVAD of $1 at r = 16% / 4 = 4% , n = 5 × 4 = 20
= $424,177 × 14.13393940
= $5,995,292
Sep 30, 2018 Reduction = $424,177
Dec 31, 2018 Reduction = $424,177 - ($5,995,292 - $424,177) × 4%
= $424,177 - $222,845
= $201,332
Lease Receivable = $5,995,292 - $424,177 - $201,332
= $5,369,783
Interest Revenue :
Interest revenue = ($5,995,292 - $424,177) × 4%
= $222,845
Interest Portion = $222,845
Principle Portion = $424,177 + $201,332 = $625,509
