Reference no: EM132947203

Questions -

Q1) Black Company purchased a packing machine intended for leasing at a cost of P330,000. The machine was leased to Red Company on January 1, 2021, at an annual rental of P58,860 payable in advance over a period of 10 years. The lease qualifies as a direct financing lease.  There is no expected residual value for the asset. Implicit interest rate is 16%. Black Company uses the calendar year. What is the amount of interest revenue recognized in profit or loss by Black Company for the years 2021 and 2022?

Q2) On March 1, 2021, Black Company leased equipment Red Company for a four-year period ending February 28, 2025. The equipment cost Black Company P310,000 and has an expected useful life of five years. Annual payments are P109,047, which includes P10,000 executory costs. The equipment's fair value is P400,000. The lessee guarantees the residual value of P80,000. Lease payment is due every March 1 and Red Company made the first payment on March 1, 2021. The lessor's implicit interest rate is 10%. Black Company incurred P16,000 costs to consummate the lease contract. The present value of 1 discounted at 10% for 4 periods is 0.68301. The present value of an annuity due of 1 for 4 periods discounted at 10% is 3.48685. The present value of an ordinary annuity of 1 at 10% for 4 periods is 3.16987. How much profit, inclusive of interest revenue, should Black Company report from this lease for the year ended December 31, 2021?