Question & Answer: AT&T令 4:44 PM ezto.mheducation.com Question 1 (of 1. 10.00 points On June 30, 2016, Georgia-Atlantic, Inc., leased a warehouse facility…..

AT&T令 4:44 PM ezto.mheducation.com Question 1 (of 1. 10.00 points On June 30, 2016, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $604,152 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2016.Georgia-Atlantics incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $4.1. (FV of $1, PV of S1, FVA of $1. PVA of $1, EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Determine the present value of the lease payments at June 30, 2016 that Georgia-Atlantic used to record the leased asset and lease liability 2 What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2016? What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2016?

AT&T令 4:44 PM ezto.mheducation.com Question 1 (of 1. 10.00 points On June 30, 2016, Georgia-Atlantic, Inc., leased a warehouse facility from IC Leasing Corporation. The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $604,152 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2016.Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate IC used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. The fair value of the warehouse is $4.1. (FV of $1, PV of S1, FVA of $1. PVA of $1, EVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: Determine the present value of the lease payments at June 30, 2016 that Georgia-Atlantic used to record the leased asset and lease liability 2 What pretax amounts related to the lease would Georgia-Atlantic report in its balance sheet at December 31, 2016? What pretax amounts related to the lease would Georgia-Atlantic report in its income statement for the year ended December 31, 2016?

Expert Answer

 

1 $604152*6.78637 = 4100000
i=5 . N = 8
2 Receivable at dec 31 2016 Receivable
Initial Balance June 30,2016 4100000
June 30 2016 reduction 604152
Dec 31 2016 reduction 429360
Dec 31 2016 receivable 3066488
The receivable replaces the $4,100,000 building on the balancesheet
Calculations:
June 30, 2016*Lease receivable (present value calculated above) 4100000
Cost of goods sold (lessor’s cost) 4100000
Sales revenue (present value calculated above) 4100000
Inventory of equipment (lessor’s cost) 4100000
Cash (lease payment) 604152
Lease receivable 604152
December 31, 2016**
Cash (lease payment)
604152
Lease receivable (difference) 429360
Interest revenue (5% × [$4,100,000 – 604152]) 174792

3. Income effect for year ended December 31, 2016

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June 30, 2016    interest revenue                                       $0*

Dec. 31, 2016    interest revenue                               174792**

Interest revenue for 2016                                         $174792

Sales revenue                                                        *4,100,000

Cost of goods sold                                              * (4,100,000)

Income effect                                                          $ 174792

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