On June 30, 2018, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreementcalls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payableeach June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowingrate is 10%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipmentat a cost of $2.5 million.Required:1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) atJune 30, 2018 (to the nearest $000).2. What amounts related to the lease would Builders report in its balance sheet at December 31, 2018 (ignore taxes)?3. What amounts related to the lease would Builders report in its income statement for the year ended December 31,2018 (ignore taxes)?
On June 30, 2018, Georgia-Atlantic, Inc. leased warehouse equipment from Builders, Inc. The lease agreement
calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term, payable
each June 30 and December 31, with the first payment at June 30, 2018. Georgia-Atlantic’s incremental borrowing
rate is 10%, the same rate Builders used to calculate lease payment amounts. Builders manufactured the equipment
at a cost of $2.5 million.
Required:
1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) at
June 30, 2018 (to the nearest $000).
2. What amounts related to the lease would Builders report in its balance sheet at December 31, 2018 (ignore taxes)?
3. What amounts related to the lease would Builders report in its income statement for the year ended December 31,
2018 (ignore taxes)?
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