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Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased to another entity with the following provisions:

Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased to another entity with the following provisions:

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 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...
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Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased to another entity with the following provisions: Annual rental payable at the end of each year Lease term and useful life of machinery Cost of machinery Residual value-unguaranteed Implicit interest rate PV of an ordinary annuity of 1 for 5 periods at 12% PV of 1 for 5 years at 12% 3,000,000 5 years 8,000,000 1,000,000 12% 3.60 0.57 At the end of the 5-year lease term, the machinery will revert to Seventeen. Seventeen incurred initial direct cost of P300,000 in finalizing the lease agreement. 1. What amount should be reported as total unearned interest income? a. 4,630,000 b. 4,200,000 c. 5,200,000 d. 3,630,000 2. What amount should be reported as gross income on sale? a. 7,700,000 b. 3,070,000 c. 2,500,000 d. 3,370,000 3. What amount should be reported as interest income for current year? a. 1,364,400 b. 1,296,000 C 1,800,000 d. 926,000
Transcribed Image Text:Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased to another entity with the following provisions: Annual rental payable at the end of each year Lease term and useful life of machinery Cost of machinery Residual value-unguaranteed Implicit interest rate PV of an ordinary annuity of 1 for 5 periods at 12% PV of 1 for 5 years at 12% 3,000,000 5 years 8,000,000 1,000,000 12% 3.60 0.57 At the end of the 5-year lease term, the machinery will revert to Seventeen. Seventeen incurred initial direct cost of P300,000 in finalizing the lease agreement. 1. What amount should be reported as total unearned interest income? a. 4,630,000 b. 4,200,000 c. 5,200,000 d. 3,630,000 2. What amount should be reported as gross income on sale? a. 7,700,000 b. 3,070,000 c. 2,500,000 d. 3,370,000 3. What amount should be reported as interest income for current year? a. 1,364,400 b. 1,296,000 C 1,800,000 d. 926,000
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