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1. What amount should be reported as total financial revenue over the lease term? a. 450,000 b. 225,000 c. 500,000 d. 250,000 2. What amount should be reported as interest income for the current year?

1. What amount should be reported as total financial revenue over the lease term? a. 450,000 b. 225,000 c. 500,000 d. 250,000 2. What amount should be reported as interest income for the current year?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2022, Alpha Company leased an equipment to another entity under a direct financing lease. The cost of the equipment to Alpha Company was P1,550,000. The lease payments stipulated in the lease are P500,000 per year payable at the end of each year over a 4-year period of the lease. The title to the equipment remains in the hands of Alpha Company at the end of the lease term, although only nominal residual value is expected at that time. The implicit interest rate in the lease is 11%. The fiscal year of Alpha Company ends December 31. 1. What amount should be reported as total financial revenue over the lease term? a. 450,000 b. 225,000 C. 500,000 d. 250,000 2. What amount should be reported as interest income for the current year? a. 134,255 b. 170,500 c. 155,000 d. 220,000 3. What is the carrying amount of the lease receivable on December 31, 2022? a. 1,220,500 b. 1,500,000 875,755 750,000 C. d. 4. What is the carrying amount of the current portion of the lease receivable on December 31, 2022? a. 500,000 b. 365,745 c. 854,755 d. 354,755 5. Prepare journal entries for 2022 and 2023. 421
Transcribed Image Text:On January 1, 2022, Alpha Company leased an equipment to another entity under a direct financing lease. The cost of the equipment to Alpha Company was P1,550,000. The lease payments stipulated in the lease are P500,000 per year payable at the end of each year over a 4-year period of the lease. The title to the equipment remains in the hands of Alpha Company at the end of the lease term, although only nominal residual value is expected at that time. The implicit interest rate in the lease is 11%. The fiscal year of Alpha Company ends December 31. 1. What amount should be reported as total financial revenue over the lease term? a. 450,000 b. 225,000 C. 500,000 d. 250,000 2. What amount should be reported as interest income for the current year? a. 134,255 b. 170,500 c. 155,000 d. 220,000 3. What is the carrying amount of the lease receivable on December 31, 2022? a. 1,220,500 b. 1,500,000 875,755 750,000 C. d. 4. What is the carrying amount of the current portion of the lease receivable on December 31, 2022? a. 500,000 b. 365,745 c. 854,755 d. 354,755 5. Prepare journal entries for 2022 and 2023. 421
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