At the beginning of current year, Lessor Company leased a machine to Lessee Company. The machine had an original cost of Php6,000,000. The lease term was five years and the implicit rate on the lease was 15%. The lease is properly classified as a direct financing lease. The annual lease payments of Php1,730,541 are made each December 31. The machine reverts to Lessor at the end of the lease term, at which time the residual value of the machine will be Php400,000. The residual value is unguaranteed. The PV of 1 at 15% for 5 periods is .4972, and the PV of an ordinary annuity of 1 at 15% for 5 periods is 3.3522.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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*see attached

What is the gross investment in the lease? 
a. 8,652,705
b. 9,052,705
c. 6,000,000
d. 8,252,705

At the beginning of current year, Lessor Company leased a machine to
Lessee Company. The machine had an original cost of Php6,000,000. The
lease term was five years and the implicit rate on the lease was 15%.
The lease is properly classified as a direct financing lease. The annual
lease payments of Php1,730,541 are made each December 31.
The machine reverts to Lessor at the end of the lease term, at which
time the residual value of the machine will be Php400,000. The
residual value is unguaranteed.
The PV of 1 at 15% for 5 periods is .4972, and the PV of an ordinary annuity
of 1 at 15% for 5 periods is 3.3522.
Transcribed Image Text:At the beginning of current year, Lessor Company leased a machine to Lessee Company. The machine had an original cost of Php6,000,000. The lease term was five years and the implicit rate on the lease was 15%. The lease is properly classified as a direct financing lease. The annual lease payments of Php1,730,541 are made each December 31. The machine reverts to Lessor at the end of the lease term, at which time the residual value of the machine will be Php400,000. The residual value is unguaranteed. The PV of 1 at 15% for 5 periods is .4972, and the PV of an ordinary annuity of 1 at 15% for 5 periods is 3.3522.
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