Camia Company is in the business of leasing new sophisticated equipment.  As lessor, Camia expects a 12% return on its net investment.  All leases are classified as a direct financing lease.  At the end of the lease term, the equipment will revert to Camia Company.  On January 1, 2010 an equipment is leased to a lessee with the following information. Cost of equipment to Camia-5,500,000 Residual value – unguaranteed-400,000 Annual rental payable in advance-959,500 Useful life and lease term-8 years Implicit interest rate-12% First lease payment-January 1, 2010 What is the total financial income to be recognized over the lease term?   a. 2,576,000 b. 2,176,000 c. 1,776,000 d. 1,616,500

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question
100%
Camia Company is in the business of leasing new sophisticated equipment.  As lessor, Camia expects a 12% return on its net investment.  All leases are classified as a direct financing lease.  At the end of the lease term, the equipment will revert to Camia Company.  On January 1, 2010 an equipment is leased to a lessee with the following information.

Cost of equipment to Camia-5,500,000

Residual value – unguaranteed-400,000

Annual rental payable in advance-959,500

Useful life and lease term-8 years

Implicit interest rate-12%

First lease payment-January 1, 2010


What is the total financial income to be recognized over the lease term?
 
a. 2,576,000
b. 2,176,000
c. 1,776,000
d. 1,616,500
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Lease accounting
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education