PROBLEM 14-8

Requirement 1
Gross rentals (875,000x8)
Bargain purchase option
Gross investment

Present value of gross rentals (875,000x5.8684)

Present value of bargain purchase option (300,000x.4665)
Total present value

Gross investment
Total present value
Unearned interest income

Requirement 2
Sales – equal to total present value
Cost of goods sold
Gross profit

Requirement 3

Date Payment Interest

Jan. 1, 2020
Jan. 1, 2020 875000 -
Jan. 1, 2021 875000 439980
Jan. 1, 2022 875000 396478

2020
1-Jan Lease Receivable
Cost of Goods Sold
Sales
Unearned Interest Income
Inventory

Cash
Lease Recievable

31-Dec Unearned Interest Income

Interest Income

2021
1-Jan Cash
Lease Receivable
 31-Dec Unearned Interest Income
Interest Income

Requirement 4
2027
31-Dec Cash
Lease Receivable
Requirement 5
31-Dec Inventory
Loss on Finance
Lease Receivable
 7000000
300000
7300000

5134850
139950
5274800

7300000
5274800
2025200

5274800
3100000
2174800

Principal Present value

5274800
875000 4399800
435020 3964780
478522 3486258

7300000
3100000
5274800
earned Interest Income 2025200
3100000

875000
se Recievable 875000

439980
erest Income 439980

875000
se Receivable 875000
 396478
erest Income 396478

300000
se Receivable 300000

200000
100000
se Receivable 300000
PROBLEM 14-9

Requirement 1
Gross rentals (500,000x5) 2500000
Present value (500,000x3.60) 1800000
Unearned interest income 700000

Requirement 2
Sales 1800000
Cost of goods sold 1000000
Gross profit 800000

Date Payment Interest Principal Present value

43831 1800000
44196 500000 216000 284000 1516000
44561 500000 181920 318080 1197920
44926 500000 143750 356250 841670

Requirement 3
2020
1-Jan Lease Receivable
Sales
Unearned Revenue

31-Dec Cash
Lease Receivable

Unearned Interest Income

Interest Income
2022
1-Jul Unearned Interest Income
Interest Income

Cash
Unearned Interest Income
Loss on Sale
Lease Receivable

Lease Receivable 7/1/2022

Unearned Interest Income 7/1/2022
Carrying Amount
Actual Sale Price
Loss on Sale of Leased asset

Interest Income 1/1/2020

Interest Income Recognized
2020
2021
2022
Unearned Interest Income 7/1/2022
2500000
1800000
700000

500000
500000

181920
181920

71875
71875

1200000
230000
69795
1500000

1500000
-230205
1269795
1200000
 69795

700000

216000
181920
71875 469795
230905
PROBLEM 14-13
1. C
2. C
3. B

Date Payment Interest Principal Present value

43831 2400000
43831 355080 - 355080 2044920
44197 355080 204492 150588 1894332

Selling price or fair value 2400000

Less: Cost to Gallant Company 2000000
Profit on sale 400000
Add: Interest income – 2020 204492
Total income before tax 604492
PROBLEM 14-14

1. A
2. A

Gross rentals (1,500,00x20) 30,000,000

Present value or fair value of asset (1,500,000x8.37) 1255500
Unearned financial revenue 17,445,000

3. B
Fair value of asset- sales price 12555000
Cost of asset 8,000,000
Profit on sale 4,555,000

4. C
PV of rentals equal to the fair value of asset 12555000
Payment of Jan. 1, 2020-all applicable to principal 1500000
Balance- January 1,2020 11055000

Interest income for 2020 ( 11,055,000x12%) 1326600