Calculation of Lease Amounts for Lessor for Manufacturer/Dealer Leases with Guaranteed

question 51

Essay

Calculation of lease amounts for lessor for Manufacturer/Dealer leases with guaranteed residual amount.
Cow Co. is a farming equipment dealer who reports using IFRS. It plans to lease a piece of farming equipment to Horse Inc. and wants to earn a profit on the equipment as well as earn interest. The details of the lease are as follows:
-It will be a 5 year lease and will have annual rental payments due at the beginning of the year.
-The rate of return Cow Co. wants to earn on the equipment is 7%.
-The estimated residual value (guaranteed) is $ 10,000 (the present value of which is $ 7,130).
-The annual lease payments are $ 55,359 (the present value of which is $ 242,870); and
-The leased equipment has an $ 200,000 cost to the dealer, Cow Co.
Instructions
Calculate the gross investment, unearned interest income, sales revenue, cost of goods sold and gross profit for Cow Co.

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