On June 30, 2021, Marketplace Company leased a machine from Air Leasing. The contract requires Marketplace to make semiannual lease payments of $229,400 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Marketplace’s incremental borrowing rate is 12%, the same rate used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. Air constructed the machine at a cost of $1,259,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required:
2. On June 30, 2021, Marketplace Company leased a machine from Air Leasing. The contract requires Marketplace to make semiannual lease payments of $229,400 over a four-year lease term, payable each June 30 and December 31, with the first payment at June 30, 2021. Marketplace’s incremental borrowing rate is 12%, the same rate used to calculate lease payment amounts. Depreciation is recorded on a straight-line basis at the end of each fiscal year. Air constructed the machine at a cost of $1,259,000. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)
Required:
1. Determine the price at which Air is “selling” the machine (present value of the lease payments) at June 30, 2021.
2. What would be the amounts related to the lease that Air would report in its balance sheet at December 31, 2021? (Ignore taxes.)
3. What would be the amounts related to the lease that Air would report in its income statement for the year ended December 31, 2021? (Ignore taxes.)
(For all the requirements, round final answers to the nearest whole dollar amounts.)
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