Practical Acctg 1 Finance Lease-Lessor

1. Gross Investment = Gross Rentals + Residual Value

* Regardless guaranteed or unguaranteed

2. Net Investment = PV of Rentals + PV of Residual Value

3. Unearned Interest Income = Gross Investment - Net Investment

4. Interest Income = Net Investment x Interest Rate

Sales = Net Investment →if residual value is guaranteed; if not →PV of rentals

5. Gross Profit = Sales-COS-Initial Direct Cost

6. Gross Investment is recorded as company's lease receivable

• 7. Total financial revenue= unearned interest income
• 8. Amount of Net Investment is credited to sales

9. COS=Cost of equipment + residual value guaranteed; if not COS=cost of equipment-PV of residual value

• 10. Net Investment for Direct Financing       Lease
•      Cost of asset+initial direct cost=Net investment