Reference no: EM132969144
Question - Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee on January 1, 2014 under a direct financing lease with the following provisions:
Cost of equipment 3,500,000
Unguaranteed residual value 200,000
Initial direct cost 100,000
Indirect cost 50,000
Useful life and lease term 8 years
Implicit interest rate 10%
Present value of an ordinary annuity of 1 for 8 years at 10% 5.335
Present value of an ordinary annuity of 1 for 7 years at 10% 4.868
Present value of 1 for 8 years at 10% 0.466
The annual rental is P700,000 payable at the beginning of each year. The equipment will not revert to the lessor upon the lease expiration. (Round-off to whole peso)
REQUIREMENTS -
1. If the entity uses Direct Finance Lease, what is the net income(loss) on December 31, 2014?
2. If the entity uses Sales-type Lease, what is the net income(loss) on December 31, 2014?
3. If the asset will revert back to the lessor and the fair value at the end of the lease term is P50,000, what is the net income(loss) of Oceanic Company under Direct Finance Lease in 2021?
4. If the asset will revert back to the lessor, what is the cost of sales under Sales-type Lease?
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