Question

On June 30, 2013, Papa Phil Inc. leased 200 pizza ovens for its chain of restaurants from Pizza Inc. The lease agreement calls for Papa Phil to make semiannual lease payments of $562,907 over a three-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2013. Pizza Inc. calculated lease payment amounts using an interest rate of 10%. Pizza Inc. manufactured the ovens at a cost of $2.5 million. Their fair value is $3,000,000.

Required:
1. Determine the price at which Pizza Inc. is “selling” the pizza ovens (present value of the lease payments) at June 30, 2013 (to the nearest $000).
2. What pretax amounts related to the lease would Pizza Inc. report in its balance sheet at December 31, 2013?
3. What pretax amounts related to the lease would Pizza Inc. report in its income statement for the year ended December 31, 2013?



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  • CreatedDecember 23, 2013
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