Reference no: EM133158395

Question - Irene Company acquired a specialized machine for P2,300,000. At the beginning of current year, the entity leased the machine for a period of six years, after which title to machine is transferred to the lessee. The six annual lease payments are due in advance at the beginning of each lease year. The residual value of the machine is P200,000. The lease terms are arranged so that a return of 12%% is earned by the lessor. The present value of 1 at 12%% for six periods is 0.51 and the present value of an annuity in advance of 1 at 12%% for six periods is 4.60.

1. What is the annual lease rental payable in advance?

At the beginning of current year, Yolk Company signed a ten-year noncancelable lease agreement to lease a storage building from Warehouse Company. The agreement required equal rental payments at the end of each year. The fair value of the building at the inception of the lease is P2,949,600. However, the carrying amount to Warehouse Company is P2,458,000. The building has an estimated economic life of 10 years with no residual value. At the termination of the lease, the title to the building will be transferred to Yolk Company. The incremental borrowing rate of Yolk Company is 12% per year. Warehouse Company set the annual rental to insure a 10 rate of return. The implicit rate of the lessor is known by the lessee. The annual total lease payment included P20,000 of executory costs related to taxes on the property. Round off present value factor to three decimal places

2. What is the annual lease payment?

3. What is the total annual lease payment?

4. What is the unearned interest income of the lessor at the beginning of current year?

At the beginning of current year, Howe Company leased equipment to Kew Company for an eight-year period. Equal payments under the lease are P500,000 and are due at the beginning of each year. The selling price of the equipment is P2,900,000 and the carrying amount is P2,000,000. The lease is appropriately accounted for as a sales type lease. The present value of the lease payments at an implicit interest rate of 12%% is P2,780,000.

5. What amount of profit on the sale should be reported for the current year?

Gold Company leased equipment to Fair Company and properly recorded the sales type lease. The eight annual payments of P300,000 are due at the beginning of each year. The lessor had purchased the equipment for P1,100,000 and had a list price of P1,800,000. The present value of the lease payments is P1,700,000. The imputed interest rate on the lease was 11%% and the lessee had an incremental borrowing rate of 10%.

6. What profit on sale should be reported in the current year?

7. What amount of interest income should be reported in the current year?