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How much interest expense should be reported

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Question - Talion Inc. leases equipment to its customers under non-cancelable leases. On January 1, 2020, Talion leased equipment costing P4,000,000 to Shawn Co., for nine years. The rental cost was P440,000 payable in advance semiannually (January 1 and July 1), plus P20,000 semiannually for executory costs. The equipment had an estimated life of 15 years and sold for P5,330,250 with an estimated unguaranteed residual value of P800,000. The implicit interest rate is 12 percent.

Based on the foregoing and the result of your audit, compute for the following: (Round off present value factors to four decimal places.)

1. How much is the total interest income from lease that will be earned by Talion, Inc.?

a. P2,869,988

b. P3,389,748

c. P3,675,616

d. P 0

2. Talion, Inc. should report profit on the sale at

a. P1,330,252

b. P1,044,384

c. P1,050,012

d. P1,338,492

3. How much should be reported by Shawn Co. as liability under finance lease as of December 31, 2020?

a. P4,143,593

b. P4,446,613

c. P4,273,410

d. P 0

4. How much should be reported by Shawn Co. under current liabilities as liability under finance lease as of December 31, 2020?

a. P356,798

b. P378,207

c. P394,252

d. P 0

5. How much interest expense should be reported by Shawn Co. in relation to the lease for the year ended December 31, 2020?

a. P508,064

b. P501,793

c. P543,398

d. P0

Reference no: EM132972149

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