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Calloway Company: Compute Interest on a financing lease

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3. (1) On January 1, 2009, Calloway Company leased a machine to Zone Corporation. The lease qualifies as a direct financing lease. Calloway paid $240,000 for the machine and is leasing it to Zone for $34,000 per year, an amount that will return 10% to Calloway. The present value of the minimum lease payments is $240,000. The lease payments are due each January 1. What is the appropriate interest entry on December 31, 2009?

A. Cash 24,000
Interest revenue 24,000

B. Cash 20,600
Interest receivable 20,600

C. Interest receivable 20,600
Interest revenue 20,600

D. Interest receivable 24,000
Interes revenue 24,000

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  • Chartered Accountant (Equivalent to CPA in US), Institute of Charted Accountants of India
  • Bachelor of Commerce, West Bengal University
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