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How would montana take account for this lease

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Question

Montana Inc. sells computer systems. Montana leases computers to Utah Company on June 30, 2017. The computers cost Montana $12 million to manufacture. The lease is non-cancelable and has the following terms:

• Lease payments: $2,466,754 semiannually; first payment due June 30, 2017; remaining payments due December 31 and June 30 each year through December 31, 2021.

• Lease term: 5 years (10 semi-annual payments).

• No residual value; no bargain purchase option.

• Economic life of equipment: 5 years.

• Implicit interest rate and lessee's incremental borrowing rate: 10% per year.

• Fair value of the computers at June 30, 2017: $20 million. Collectability of the rental payments is reasonably assured, and there are no lessor costs yet to be incurred.

A) Montana would account for this lease as?

B) Utah Company would account for this lease as?

C) The net carrying value of the lease liability on Utah's books after the December 31, 2017 payment is closest to?

D) Total interest revenue Montana would report on its year end December 31, 2017 income statement relative to this lease is closest to?

Reference no: EM132315407

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