What is the amount of net investment in the lease

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Reference no: EM132918177

Question

1) DBZ Machineries, dealer of machinery and equipment, leased equipment to Best Products on July 01, 2021. The lease is appropriately accounted for as a sale by DBZ Machineries and a purchase by Best Products. The lease is for a 10-year period (the useful life) of the asset expiring on June 30, 2031. The first of ten equal annual payments of P250,000 was made on July 01, 2021. DBZ Machineries purchased the equipment for P1,337,500 on January 01, 2021 and established a list selling price of P1,687,500 on the equipment. Assume that the present value at July 01, 2021 of rent payments over the lease term discounted at 12% was P1,582,500.

What is the amount of net investment in the lease and the total income that DBZ Machineries should recognize for the year ended December 31, 2021?

2) On January 1, Year 1, Eminem Company leased a piece of machinery costing P6,000,00 with an unguaranteed residual value of P400,000. The lease term is 5 years, and the implicit interest rate is 15%. The annual lease payment of P1,730,541 is due at the end of the year starting December 31, Year 1. The machine reverts to the lessor at the end of the lease term. The lease is considered a direct finance lease. How much is the net amount of the lease receivable on December 31, Year 17.

Reference no: EM132918177

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