ABC Machineries, dealer of machinery and equipment, leased equipment to XYZ on July 01, 2021. The lease is appropriately accounted for as a sale by ABC Machineries and a purchase by XYZ. The lease is for a 10-year period (the useful life) of the asset expiring on June 30, 2031. The first of ten equal annual payments of P250,000 was made on July 01, 2021. ABC Machineries purchased the equipment for P1,337,500 on January 01, 2021 and established a list selling price of P1,687,500 on the equipment. Assume that the present value at July 01, 2021 of rent payments over the lease term discounted at 12% was P1,582,500. What is the amount of net investment in the lease and the total income that ABC Machineries should recognize for the year ended December 31, 2021?* ,

ABC Machineries, dealer of machinery and equipment, leased equipment to XYZ on July 01, 2021. The lease is appropriately accounted for as a sale by ABC Machineries and a purchase by XYZ. The lease is for a 10-year period (the useful life) of the asset expiring on June 30, 2031. The first of ten equal annual payments of P250,000 was made on July 01, 2021. ABC Machineries purchased the equipment for P1,337,500 on January 01, 2021 and established a list selling price of P1,687,500 on the equipment. Assume that the present value at July 01, 2021 of rent payments over the lease term discounted at 12% was P1,582,500. What is the amount of net investment in the lease and the total income that ABC Machineries should recognize for the year ended December 31, 2021?* ,

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

ABC Machineries, dealer of machinery and equipment, leased equipment to XYZ on
July 01, 2021. The lease is appropriately accounted for as a sale by ABC Machineries
and a purchase by XYZ. The lease is for a 10-year period (the useful life) of the asset
expiring on June 30, 2031. The first of ten equal annual payments of P250,000 was
made on July 01, 2021. ABC Machineries purchased the equipment for P1,337,500 on
January 01, 2021 and established a list selling price of P1,687,500 on the equipment.
Assume that the present value at July 01, 2021 of rent payments over the lease term
discounted at 12% was P1,582,500.
What is the amount of net investment in the lease and the total income that ABC
Machineries should recognize for the year ended December 31, 2021? * 6

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