Reference no: EM132905851
Question - Hewlett-Packard Company adopted the policy of leasing as the primary method of selling products. The entity's main product is a heavy-duty computer processor. Hewlett-Packard Company constructed such a heavy-duty computer processor for Accenture at a cost of P8,500,000.
The term of the lease provided for annual advance payments of P2,500,000 to be paid over 10 years with the ownership transferring to Accenture at the end of the lease period. It is estimated that the heavy-duty computer processor will have a residual value of 1,600,000 at that date.
The lease payments began at the beginning of current year. Hewlett-Packard Company incurred initial direct costs of P500,000 in the financing lease agreement with Accenture. The sales price of the heavy-duty computer processor is P14,875,000.
Financing the construction was at a 14% rate. The present value of an annuity due of 1 at 14% for 10 periods is 5.95.
a. What amount should be reported as gross profit on sale for the current year?
b. What is the unearned interest income at the beginning of current year?
c. What is the interest income for the current year?
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