Compute for the total financial or interest revenue over the lease term MISTLETOE Company is a dealer in equipment. The entity leased equipment to a lessee onJanuary 1, 2021 for an eight-year period expiring January 1, 2029. Equal annual payments underthe lease are due at the end of each year beginning December 31, 2021. The lease agreementincluded a guaranteed residual value of P200,000 and an implicit rate of 10%. It was determinedthat the fair value of the asset is P3,000,000. The carrying amount is P2,500,000 and that thepresent value of the minimum lease payment at 10% is P2,760,900. The PV of 1 at 10% for 8periods is 0.467, and the PV of an ordinary annuity of 1 at 10% for 8 periods is 5.335.

We will use the PV of an ordinary annuity of 1 at 10% for 8 years to compute the lease payments per…

Answered: Compute for the total financial or…

Business

Accounting

Compute for the total financial or interest revenue over the lease term

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

Compute for the total financial or interest revenue over the lease term

MISTLETOE Company is a dealer in equipment. The entity leased equipment to a lessee on
January 1, 2021 for an eight-year period expiring January 1, 2029. Equal annual payments under
the lease are due at the end of each year beginning December 31, 2021. The lease agreement
included a guaranteed residual value of P200,000 and an implicit rate of 10%. It was determined
that the fair value of the asset is P3,000,000. The carrying amount is P2,500,000 and that the
present value of the minimum lease payment at 10% is P2,760,900. The PV of 1 at 10% for 8
periods is 0.467, and the PV of an ordinary annuity of 1 at 10% for 8 periods is 5.335.

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