On January 1, 2021, Princess Corporation leased equipment to King Company. The lease term is 12 years. The first payment of $716,000 was made on January 1, 2021. The equipment cost Princess Corporation $5,188,466. The present value of the lease payments is $5,588,516. The lease is appropriately classified as a sales-type lease. Assuming the interest rate for this lease is 9%, how much interest revenue will Princess record in 2022 on this lease? (Round your answer to the nearest whole dollar amount.)

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2022-07-01T20:02:24+02:00

The amount of the interest revenue that Princess will record in 2022 on this lease is:$413,553.82.

First step

Lease value payments after first payment:

Lease value payments= $5,588,516- $716,000

Lease value payments= $4,872,516

Second step

Lease value payments after second payment:

Lease value payments=$4,872,516+ ($4,872,516×9%) - $716,000

Lease value payments=$4,872,516+$438,526.44-$716,000

Lease value payments=$4,595,042.44

Third step

2022 Interest revenue=$4,643,787.6×9%

2022 Interest revenue=$413,553.8196

2022 Interest revenue=$413,553.82 (Approximately)

Therefore the amount of the interest revenue that Princess will record in 2022 on this lease is:$413,553.82.

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