Reference no: EM132946209

Questions -

Q1) On December 31, 2020, Pink Company signed a five-year, non-cancelable lease for a machine with Best Company. The terms of the lease called for Pink Company to make annual payments of P800,000 in advance starting on December 31, 2020 and every December 31 thereafter.  The machine has an estimated useful life of six years and a P40,000 unguaranteed residual value at the end of the five-year lease term.  The machine reverts back to the lessor at the end of the five-year lease term.  Pink Company uses the straight-line method of depreciation for all of its depreciable assets. The rate implicit in this contract, which is known to Pink Company, is 12%. The present value of an annuity due of 1 at 12% for 5 periods is 4.037. The present value of 1 for a single payment at 12% for 5 periods is 0.567. What is the carrying amount of the Right-of-Use Machine on December 31, 2021?

Q2) Black Company uses lease as a means of selling its equipment. On July 1, 2021, the company leased a piece of equipment to Red Company. The cost of the equipment to Black Company was P684,000.  The fair market value (which was the sales price) was P792,200 at the time of the inception of the lease. Annual lease payments are P135,000 and are payable in advance for 8 years. The equipment has an expected economic life of 10 years. At the end of the lease term, the title to the equipment will pass to Red Company. Implicit interest rate is 10%. What is the manufacturer's profit recognized by Black Company in 2021?