| – On June 30, 2018, Georgia-Atlantic, Inc., leased warehouse equipment from Builders, Inc. | ||||||
| – The lease agreement calls for Georgia-Atlantic to make semiannual lease payments of $562,907 over a three-year lease term. | ||||||
| – Payable each June 30 and December 31, with the first payment at June 30, 2018. | ||||||
| – Georgia-Atlantic’s incremental borrowing rate is 10%, the same rate Builders used to calculate lease payment amounts. | ||||||
| – Builders manufactured the equipment at a cost of $2.5 million. | ||||||
| Required: | ||||||
| 1. Determine the price at which Builders is “selling” the equipment (present value of the lease payments) at June 30, 2018. | ||||||
| 2. What pretax amounts related to the lease would Builders report in its balance sheet at December 31, 2018? | ||||||
| 3. What pretax amounts related to the lease would Builders report in its income statement for the year ended December 31, 2018? | ||||||
