Question

Economic life of equipment: 5 years. Implicit interest rate and lessee's incremental borrowing rate: 9% semiannually. Fair value of the computers at January 1, 2021: $23 million. What is the interest revenue that Technoid would report for this lease in its 2021 income statement

Answer 1

$3,411,922.19

Step-by-step explanation:

Calculation to determine the interest revenue that Technoid would report for this lease in its 2021 income statement

First step is calculate interest for the first six months

Interest for the first six months=[$23,000,000-lease payment of 3,287,947) × 9%]

Interest for the first six months=$19,712,053×9%

Interest for the first six months=$1,774,084.77

Interest for the first six months=$1,774,085 (Approximately)

Second step is to calculate the interest for the second six months

Interest for the second six months=[$23,000,000 - lease payment of 3,287,947 - ($3,287,947 - $1,774,085)] × 9%

Interest for the second six months=($19,712,053-$1,513,862)×9%

Interest for the second six months=$18,198,191×9%

Interest for the second six months=$1,637,837.19

Now let determie the interest revenue using this formula

Interest revenue=Interest for the first six months+Interest for the second six months

Let plug in the formula

Interest revenue=$1,774,085+$1,637,837.19

Interest revenue=$3,411,922.19

Therefore the interest revenue that Technoid would report for this lease in its 2021 income statement is $3,411,922.19.