Problem 1At the beginning of the current year, Lessor Company leased a machine to Lessee Company. Themachine had an original cost of P6,000,000. The lease term was five years and the implicit interest rateon the lease was 15%. The lease is properly classified as a direct financing lease. The annual leasepayments of P1,750,000 are made December 31.The machine reverts to Lessor at the end of the lease term, at which time the residual value of themachine will be P275,000. The residual value is unguaranteed.1. At the commencement of the lease, what would be the net lease receivable on the part of thelessor?2. What amount should be reported as gross investment in the lease?3. What amount should be reported as total unearned interest income?4. What amount should be reported as interest income for the current year?

1. Net lease receivable by lessor = Present value with interest 15% = P 60,00,000 Workings…

Answered: ne had an original co lease was 15%. Th…

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ne had an original co lease was 15%. Th nts of P1,750,000 are achine reverts to Le

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter10: Long-term Liabilities

Section: Chapter Questions

Problem 10.7E

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