Question

On January 1, 2021, Princess Corporation leased equipment to King Company. The lease term is 11 years. The first payment of $700,000 was made on January 1, 2021. The equipment cost Princess Corporation $4,641,167. The present value of the lease payments is $5,001,197. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 10%, how much interest revenue will Princess record in 2022 on this lease

Answer 1

Answer: $403,221.67

Step-by-step explanation:

Interest revenue in 2022 = Value of Lease payments in 2022 * Interest rate

Value of lease payments after first payment :

= 5,001,197 - 700,000

= $4,301,197

Value of lease payments after second payment in 2022:

= Value of lease payment after first payment + Interest revenue - lease payment

= 4,310,197 + (4,310,197 * 10%) - 700,000

= $4,032,216.70

Interest revenue in 2022 = 4,032,216.70 * 10%

= $403,221.67