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What profit on sale should be reported in the current year

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Problem - 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%.

Required -

Q1. What profit on sale should be reported in the current year?

a. 380,000

b. 600,000

c. 220,000

d. 0

Q2. What amount of interest income should be reported in the current year?

a. 165,000

b. 140,000

c. 187,000

d. 154,000

Reference no: EM132825677

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