Damon, Inc., leased equipment to Union Company on January 1, 2000.  The lease is for an eight-year period expiring January 1, 2008.  The first equal annual payment of $800,000 was made on January 1, 2000.  The cash selling price of the equipment is $4,695,000, which is equal to the present value of the lease payments at 10%.  Damon had purchased the equipment for $4,200,000.  The lease is appropriately recorded as a sale by Damon.  What amount of interest income should Damon record in 2000 as a result of the lease?

Bond Company leased equipment from Howe, Inc., on December 31, 20X0, for a ten-year period (the useful life of the asset) expiring ten years from the incpetion of the lease..  Equal annual payments under the lease are $100,000 and are due on December 31 of each year.  The first payment was made on December 31, 20X0, and the second payment was made on the due date. The present value at December 31, 20X0, of the minimum lease payments over the lease term discounted at 10% (the implicit rate computed by Howe and known by Bond) was $676,000.  Bonds's incremental borrowing rate was 12% at December 31, 20X0.  The lease is appropriately accounted for as a capital lease by Bond.  What should be the balance in Bond's liability under capital lease account at December 31, 20X1?

Melville Company leased equipment from Rice Corporation on July 1, 20X1, for an eight-year period expiring June 30, 20X9.  Equal payments under the lease are $600,000 and are due on July 1 of each year.  The first payment was made on July 1, 20X1.  The rate of interest contemplated by Melville and Rice is 10%.  The cash selling price of the equipment is $3,520,000 and the cost of the equipment on Rice's accounting records is $2,800,000.  Assuming that the lease is appropriately recorded as a sales-type lease, what is the amount of profit on the sale and interest income that Rice should record for the year ended December 31, 20X1?

On January 1, 2000, Babson, Inc. leased two automobiles for executive use.  The lease requires Babson to make five annual payments of $13,000 beginning January 1, 2000.  At the end of the lease term, December 31, 2004, Babson guarantees the residual value of the automobiles will total $10,000.  The lease qualifies as a capital lease.  The interest rate implicit in the lease is nine percent. Present value factors for the nine percent rate implicit in the lease are as follows:

For an annuity due with 5 payments           4.240
For an ordinary annuity with 5 payments      3.890
Present value of $1 for 5 periods            0.650

Babson's recorded capital lease liability immediately after the first required payment should be

A six-year captial lease entered into on December 31, 20X4, specified equal minimum annual lease payments due on December 31 of each year.  The first minimum annual lease payment, paid on December 31, 20X4, consists of which of the following?

Interest expense         Lease liability

At the inception of a capital lease for a lessee, the guaranteed residual value should be

Glade company leases computer equipment to customers under direct-financing leases.  The equipment has no residual value at the end of the lease and the leases do not contain bargain purchase options.  Glade wishes to earn 8% interest on a five-year lease of equipment with a fair value of $323,400.  The present value of an annuity due of $1 at 8% for five years is 4.312.  What is the total amount of interest revenue that Glade will earn over the life of the lease?

On the first day of its fiscal year Lessor, Inc., leased certain property at an annual rental of $100,000 receivable at the beginning of each year for ten years.  The first payment was received immediately.  The leased property which is new had cost $650,000 and has an estimated useful life of thirteen years and no salvage value.  Lessor's borrowing rate is 8%.  The present value of an annuity of $1 payable at the beginning of the period at 8% for ten years is 7.247.  Lessor had no other costs associated with this lease.  What was the effect on net earnings during the first year of the lease by having treated this lease as an operating lease rather than as a sale?

In a lease that is recorded as a sales-type lease by the lessor, the difference between the gross investment in the lease and the sum of the present values of the two components of the gross investment should be recorded as

A six-year capital lease specifies equal minimum annual lease payments.  Part of this payment represents interest and part represents a reduction in the net lease liability.  The portion of the minimum lease payment in the fourth year applicable to the reduction of the net lease liability should be