Reference no: EM132518791

GG Na Inc. Uses leases as a method of selling its products. In 2019 the Company completed construction of its passenger ferry. On January 1, 2019, the ferry was leased to the Super Ferry Line on a contract specifying that ownership of the ferry will transfer to the lessee at the end of the lease period. Annual lease payments do not include executory costs.

Other terms of the agreement are as follows:

Original cost of the ferry                                        8,000,000

Fair value of ferry at lease date                              12,555,000

Lease payments in advance                                    1,500,000

Estimated residual value                                           2,000,000

Implicit Interest Rate                                                     12%

Date of first lease payment 1-Jan-19

Lease term                                                                20 years

Present value of an annuity due of P1 at 10% for 20 periods   8.37

Present value of 1 at 12 % for 20 periods                          0.1

Problem 1: What is the total financial revenue over the lease term?

A. 17,445,000 B. 19,245,000 C. 19,445,000 D. 22,000,000

Problem 2: What is the gross profit on sale for 2019?

A. 6,555,000 B. 4,555,000 C. 4,755,000 D. 4,355,000

Problem 3: What is the interest income for 2019?

A. 1,506,600 B. 1,524,600 C. 1,326,600 D. 1,350,600