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How much interest revenue will be recorded on December

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Question - On January 1, 2019, Lessee Co. entered into an 8-year agreement with Lessor Co. to use equipment in typical use and with a useful life of 12 years. The lease requires yearly payments in advance on January 1 of each year for $82,100.

The FMV of the asset on open market on January 1 is $565,000. The asset cost $520,000 on January 1, 2019 to the Lessor.

The agreement was structured by a lease broker, who charged Lessee Co. $2,000 to write the lease, with payment due on January 1, 2019. Lessee Co. has analyzed the service or lease implications and determined that this is a lease arrangement for accounting purposes.

The Lessee has guaranteed a residual value to the Lessor, in order to retain the asset in good condition. The guaranteed residual value for the asset is $40,000.

The rate implicit in the lease is 6%, the lessee's incremental borrowing rate is 7%, and the lessee is aware of the lease rate. Both companies use straight line depreciation for assets and a calendar year for year-end.

Assuming a finance lease for the Lessor and Lease Receivable correctly recorded as $565,510, how much interest revenue will be recorded on December 31, 2019?

Reference no: EM133150675

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