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bala
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Joined: 09 Jan 2009
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Posts: 355

Posted: 01 Oct 2010 at 15:45 \| IP Logged

Farm Co. leased equipment to Union Co. on July 1, 1994, and properly recorded the sales-type lease at $135,000, the present value of the lease payments discounted at 10%. The first of eight annual lease payments of $20,000 due at the beginning of each year was received and recorded on July 3, 1994. Farm had purchased the equipment for $110,000. What amount of interest revenue from the lease should Farm report in its 1994 income statement?

a) $0
b) $5500
c) $5750
d) $6750

ans is C. $135000-20000=115000*10%*6/12= $5750

i thought ans was A, bcoz the first lease payment was made 2 days later. so the payment consists of only principal and no interest.

so why the correct ans is C?

Thanks!

__________________
REG 88
BEC 76

Blindbat7
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Joined: 01 Dec 2009
Location: United States
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Posts: 142

Posted: 01 Oct 2010 at 16:00 \| IP Logged

There will be 8 annual payments, due in July. The first payment will reduce principle only, as no interest has accrued. Interest expense will still accrue during the year, and be payable in July.

Therefore, althought Farm won't pay the interest yet, it must acknowledge the accrual.

__________________
Using Bisk/CPA Excel
REG: 7/2/10 = 72 Retook 10/8/11
BEC: 8/31/10 = 78
FAR: 10/15/10= 85
AUD: 11/29/10= 82

bala
Major Contributor

Joined: 09 Jan 2009
Online Status: Offline
Posts: 355

Posted: 01 Oct 2010 at 20:46 \| IP Logged

Thanks so much Blindbat! appreciate your help.
All The Best For your exam! when are you planning to take FAR?

__________________
REG 88
BEC 76

Blindbat7
Regular
Regular

Joined: 01 Dec 2009
Location: United States
Online Status: Offline
Posts: 142

Posted: 01 Oct 2010 at 20:54 \| IP Logged

My pleasure! Thanks for the kind words, and good luck in your studying =]

I'll be sitting 10/15. I'm a bit worried about the amount of material, and I'm hoping the exam isn't as in depth as my study materials (just spent a few days on cash flow and I'm still hit or miss haha).

When are you taking FAR?

__________________
Using Bisk/CPA Excel
REG: 7/2/10 = 72 Retook 10/8/11
BEC: 8/31/10 = 78
FAR: 10/15/10= 85
AUD: 11/29/10= 82

bala
Major Contributor

Joined: 09 Jan 2009
Online Status: Offline
Posts: 355

Posted: 03 Oct 2010 at 01:25 \| IP Logged

Thanks Blindbat! im taking FAR towards Nov end. im following Becker and only half way through the book!! im already exhausted with vast amount of material and details.
once again Best wishes for ur exam.
please do share your experience!

__________________
REG 88
BEC 76

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