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Nichols Fruits leased farm equipment from King Machinery on January 1, 2021. The present value of the lease payments discounted at 10% was $40 million. Ten annual lease payments of $6 million are due at the beginning of each year beginning January 1, 2021. King had constructed the equipment recently for $33 million. With this lease agreement, control is considered to be transferred to the lessee at the beginning of the lease. What amount of interest revenue from the lease should King report in its 2021 income statement?
A. $3.4 million.
B. $6.0 million.
C. $17.0 million.
D. $10.4 million.

Sagot :

abiolataiwo2015

Answer:

A. $3.4 million

Explanation:

Calculation for What amount of interest revenue from the lease should King report in its 2021 income statement

Interest revenue = 10% * [$40 - $6])

Interest revenue = 10% *$34

Interest revenue = $3.4 million

Therefore the amount of interest revenue from the lease that King should report in its 2021 income statement will be $3.4 million

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