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Question - Glad Manufacturing Company leased a piece of equipment to Great Company on April 1, 2020. The lease is appropriately recorded as a sale by Glad. The lease is for an 8-year period ending March 31, 2028. The first of 8 equal annual payments of P175,000 (excluding executory costs) was made on April 1, 2020. The cost of the equipment to Glad is P940,000. The equipment has an estimated useful life of 10 years with an unguaranteed residual value of P100,000. At the end of the lease term, the leased equipment reverts to Glad Manufacturing Company. The interest implicit in the lease is 10%.
a) Prepare all the journal entries relating to the lease in the books of Glad Company for years 2020 and 2021.
b) Compute the following:
1) Gross profit on sales
2) Interest revenue for the year 2020
c) What are the amounts of sales and cost of sales recorded by Glad Company at the commencement of the lease assuming that the residual value is guaranteed by the lessee?
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