Reference no: EM132947019
Questions -
Q1) Black Company leased a piece of equipment to Red Company on April 1, 2021. The lease is appropriately recorded as a sale by Black. The lease is for an 8-year period ending March 31, 2029. The first of 8 equal annual payments of P175,000 (excluding executory costs) was made on April 1, 2021.
The cost of the equipment to Black is P940,000. The equipment has an estimated useful life of 10 years with a guaranteed residual value of P100,000. At the end of the lease term, the leased equipment reverts to Black Company. The interest rate implicit in the lease is 10%.
The present value of a single payment at 10% for 8 periods is 0.4665. The present value of an ordinary annuity of 1 at 10% for 8 periods is 5.3349. The present value of an annuity due of 1 at 10% for 8 periods is 5.8684. How much is the total financial revenue (interest revenue) over the lease term?
Q2) On January 1, 2021, Pink Corporation signed a 5-year non-cancelable lease for a machine with Best Company. The terms of the lease called for Pink to make annual payments of P150,000 at the beginning of each year starting January 1, 2021. The machine has an estimated useful life of 6 years and a P50,000 unguaranteed residual value at the end of the five-year lease term. The machine reverts to the lessor at the end of the five-year lease term. Pink uses the straight-line method of depreciation for all of its plant assets. The rate implicit in this contract, which is known to Pink, is 10%. The fair value of the machine on January 1, 2022 is P650,000. Pink incurred directly attributable cost of P15,000 to install the machine. Pink has a constructive obligation to restore the machine to a condition still suitable for use at the end of the lease term. Estimated cost of restoration is P10,000. (Use a discount rate of 10% to measure the provision.)
PV of 1 at 10% for 5 periods is 0.6209
PV of an ordinary annuity of 1 at 10% for 5 periods is 3.7908
PV of an annuity due of 1 at 10% for 5 periods is 4.1699
What is the capitalized cost of the right-of-use machine?