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Problem 14-19 (IAA) At the beginning of current year, Ultra Company lease. equipment to alessee under a sales type lease. Rentals ar payable at the end of each year, beginning December 31 a the current year. The lease term is 6 years and the usefu

Problem 14-19 (IAA) At the beginning of current year, Ultra Company lease. equipment to alessee under a sales type lease. Rentals ar payable at the end of each year, beginning December 31 a the current year. The lease term is 6 years and the usefu

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter20: Accounting For Leases
Section: Chapter Questions
Problem 2E: Lessee Accounting with Payments Made at Beginning of Year Adden Company signs a lease agreement...
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Please answer all the sub-parts 1-4. I badly need it. And please provide concrete solution as well as explanation. Thank you so much.

Problem 14-19 (IAA) At the beginning of current year, Ultra Company leased equipment to alessee under a sales type lease. Rentals are payable at the end of each year, beginning December 31 of the current year. The lease term is 6 years and the useful life of the equipment is 8 years. The fair value of the equipment was P1,273,800 while the cost was P800,000. The implicit rate in the lease is 12% which is known to the lessee. The lessee had the option to purchase the equipment for P80,000 at the end of the lease term. It is reasonably certain that the lessee shall exercise the purchase option. The present value of 1 at 12% for 6 periods is 0.51 and the present value of an ordinary annuity of 1 at 12% for 6 periods is 4.11. 1. What amount should be recognized as annual rental payment? a. 194,647 b. 184,720 c. 300,000 d. 309,927 2. What amount should be reported initially as total financial revenue? a. 606,200 b. 526,200 c. 388,320 d. 920,000 3. What amount should be reported as gross income from the sale? a. 606,200 b. 473,800 c. 553,800 d. 0 4. What amount should be reported as interest income for the current year? a. 152,856 b. 216,000 c. 147,960 d. 101,033 454
Transcribed Image Text:Problem 14-19 (IAA) At the beginning of current year, Ultra Company leased equipment to alessee under a sales type lease. Rentals are payable at the end of each year, beginning December 31 of the current year. The lease term is 6 years and the useful life of the equipment is 8 years. The fair value of the equipment was P1,273,800 while the cost was P800,000. The implicit rate in the lease is 12% which is known to the lessee. The lessee had the option to purchase the equipment for P80,000 at the end of the lease term. It is reasonably certain that the lessee shall exercise the purchase option. The present value of 1 at 12% for 6 periods is 0.51 and the present value of an ordinary annuity of 1 at 12% for 6 periods is 4.11. 1. What amount should be recognized as annual rental payment? a. 194,647 b. 184,720 c. 300,000 d. 309,927 2. What amount should be reported initially as total financial revenue? a. 606,200 b. 526,200 c. 388,320 d. 920,000 3. What amount should be reported as gross income from the sale? a. 606,200 b. 473,800 c. 553,800 d. 0 4. What amount should be reported as interest income for the current year? a. 152,856 b. 216,000 c. 147,960 d. 101,033 454
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