On December 31, 2018, Dire Straits Co. leased an equipment with a cost of $900,000 to...

 

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On December 31, 2018, Dire Straits Co. leased an equipment with a cost of $900,000 to Sultans of Swing Co. for 4 years which is also the useful life of the asset. The lease agreement specifies equal annual payment of P251,600 beginning on December 31, 2018. On the same date, Dire Straits Co. paid $24,128 incremental costs that are directly attributable to negotiating and arranging a lease. At the end of the lease term, the equipment will revert to Dire Straits Co. The rate implicit on the lease is 8% but after considering the initial direct cost the implicit rate is adjusted at 6%. Based on the above data, answer the following: 1. How much is the total interest income to be earned over the lease term? 2. How much is the total interest income in 2019? 3. How much is the leased-related asset to be shown as current in the statement of financial position on December 31, 2018? On December 31, 2018, Dire Straits Co. leased an equipment with a cost of $900,000 to Sultans of Swing Co. for 4 years which is also the useful life of the asset. The lease agreement specifies equal annual payment of P251,600 beginning on December 31, 2018. On the same date, Dire Straits Co. paid $24,128 incremental costs that are directly attributable to negotiating and arranging a lease. At the end of the lease term, the equipment will revert to Dire Straits Co. The rate implicit on the lease is 8% but after considering the initial direct cost the implicit rate is adjusted at 6%. Based on the above data, answer the following: 1. How much is the total interest income to be earned over the lease term? 2. How much is the total interest income in 2019? 3. How much is the leased-related asset to be shown as current in the statement of financial position on December 31, 2018?

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To calculate the answers to your questions we need to analyze the lease and break it down into its components There are two main components the intere... View the full answer