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Describes the pattern of interest revenue for Disney

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Problem - Disney Leasing leases electronic equipment to a variety of businesses. The company's primary service is providing alternative financing by acquiring equipment and leasing it to customers under long-term sales-type leases. Disney earns interest under these arrangements at a 6% annual rate.

The company leased an electronic typesetting machine it purchased for $88,636 to a local publisher on December 31, 2020. The lease contract specified annual payments of $14,300 beginning January 1, 2021, the beginning of the lease, and each December 31 through 2025 (six-year lease term). The publisher had the option to purchase the machine on December 30, 2026, the end of the lease term, for $20,000 when it was expected to have a residual value of $29,000, a sufficient difference that exercise seems reasonably certain.

Required -

1. Show how Disney calculated the $14,300 annual lease payments for this sales-type lease.

2. Prepare an amortization schedule that describes the pattern of interest revenue for Disney Leasing over the lease term.

Reference no: EM132845821

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