Herald Company is a dealer in equipment. On January 1, 2020, an equipment was leased to another entity with the following provisions: Annual rental payable at the end of each year P1,500,000 Lease term and useful life of machinery 5 years Cost of equipment P4,000,000 Residual value – unguaranteed P500,000 Implicit interest rate 12% At the end of the lease term on December 31, 2024, the equipment will revert to the lessor, Herald Company. The perpetual inventory system is used. Herald Company incurred initial direct cost of P200,000 in finalizing the lease agreement. 1. What is the total financial revenue to be reported by Herald Company? 2. What is the interest revenue to be recognized by Herald for 2020? 3. Herald Company should report profit on the sale for 2020 at?
Herald Company is a dealer in equipment. On January 1, 2020, an equipment was leased to
another entity with the following provisions:
Annual rental payable at the end of each year P1,500,000
Lease term and useful life of machinery 5 years
Cost of equipment P4,000,000
Residual value – unguaranteed P500,000
Implicit interest rate 12%
At the end of the lease term on December 31, 2024, the equipment will revert to the lessor,
Herald Company. The perpetual inventory system is used. Herald Company incurred initial
direct cost of P200,000 in finalizing the lease agreement.
1. What is the total financial revenue to be reported by Herald Company?
2. What is the interest revenue to be recognized by Herald for 2020?
3. Herald Company should report profit on the sale for 2020 at?
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