Reference no: EM132931765

Questions -

Q1) ADC Company leases out an equipment under direct finance lease. There is no residual value nor bargain purchase option. The entity wishes to earn 8% on a 5-year lease of equipment costing P3,234,000, January 1, Year 1. First annual lease payment is payable immediately on the contract date on How much is the interest revenue for Year 1? (use three decimal places for the PV factors)

A. P154,620

B. None

C. P258,720

D. P198,720

Q2) On August 1, 2020, AB Company leased a machine to CD company for six years requiring payments of P100,000 at the beginning of each lease year. The machine cost P470,000, which is the fair value at the inception of the lease. AB company has the option to purchase the machine for P5,000 which is significantly lower than the expected fair value of the machine at the lease expiration date. AB company incurred an initial direct cost of P3,000. The interest rate implicit in the lease is 10%. AB appropriately recorded the lease as a direct financing lease. How much total financial revenue would AB Company earned over the term of the lease?

A. P135,000

B. P132,000

C. P125,000

D. P130,000