Superbyte Corporation Sells Photographic Equipment

question 109

Multiple Choice

Superbyte Corporation sells photographic equipment. Superbyte leases equipment to Laguna Madre Company on January 1 of the current year. The cost to manufacture the equipment was $12 million. The lease agreement between SuperByte and Laguna Madre had the follow terms: 1. The lease is noncancellable.
2) The lease has no residual value or bargain purchase option.
3) The lease term is 8 years; payments are made semiannually.
4) Depreciation is recorded each December 31 using the straight-line approach.
5) The economic life of the equipment is 8 years.
6) The lessee's incremental borrowing rate and the implicit interest rate are both 12% annually.
7) The lease payments are $1,493,617 semiannually. The first payment is due at the inception of the lease; subsequent payments are made every July 1 and January 1.
8) The fair value of the equipment at the inception of the lease is $16,000,000.
What is the interest revenue that SuperByte will report on this lease in its current year income statement?

• A) $1,626,340
• B) $1,703,372
• C) $1,887,983
• D) $1,822,028

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Definitions:

ATMs

Automated Teller Machines, electronic banking outlets that allow customers to complete transactions without the need for a human clerk or bank teller.

Banking Industry

The sector of the economy made up of banks and financial institutions that provide services like accepting deposits, lending money, and other financial activities.

Substitutes

Goods or services that can be used in place of each other, having the ability to satisfy similar consumer needs or desires.

Complements

Goods or services that are used together, where an increase in demand for one leads to an increase in demand for the other.