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What is the unearned interest income

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Question - On January 1, 2020, Walang Mass Promotion Company leased an Equipment to another entity with the following details, the Lease is treated as Direct Financing Lease:

Annual Rental Payable at the beginning of each year P1,800,000.00

Residual Value - Guaranteed P1,200,000.00

Lease Term 8 Years

Useful Life of Machinery 8 Years

Implicit Interest Rate 6%

PV of Ordinary Annuity of 6% for 8 periods 6.2098

PV of Annuity Due of 6% for 8 periods 6.5824

PV of 1 for 7 periods 0.6274

Payments starts on January 1, 2020

Required -

1. What is the Gross Investment?

2. What is the Unearned Interest Income?

3. At the end of the Lease Term the Fair Value of the Equipment is 1,000,000, how much is the Loss on Finance Lease?

Reference no: EM132739081

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