CORONA Co., a lessor of office equipment, purchased a new equipment for P 1,000,000 on December 31, 2017. The equipment was delivered the same day to Charlie Co., the lessee The following information relates to the lease transaction 1). The leased asset has an economic life of ten years. 2) At the expiration of the lease, the equipment will revert to CORONA, at which time it is expected to have a residual value of P 120,000 (none of which is guaranteed) 3) CORONA's implicit interest rate is 12% which is known by Charlie 4) Charlie's incremental borrowing rate is 14% at December 31, 2017 5) Lease rentals consist of seven equal annual payments, the first of which was paid on December 31, 2017 6) CORONA properly accounts for this lease as a direct financing lease and as a finance lease by Charlie. Both lessor and lessee are calendar year corporations and depreciate all property, plant, and equipment on the straight line basis. The present value tables show the following present value factors: Present value of 1 for seven periods at 12% Present value of 1 for seven periods at 14% Present value of an annuity due for seven periods at 12% Present value of an annuity due for seven periods at 14% 0.4523 0.3996 5.1114 4.8387

CORONA Co., a lessor of office equipment, purchased a new equipment for P 1,000,000 on December 31, 2017. The equipment was delivered the same day to Charlie Co., the lessee The following information relates to the lease transaction 1). The leased asset has an economic life of ten years. 2) At the expiration of the lease, the equipment will revert to CORONA, at which time it is expected to have a residual value of P 120,000 (none of which is guaranteed) 3) CORONA's implicit interest rate is 12% which is known by Charlie 4) Charlie's incremental borrowing rate is 14% at December 31, 2017 5) Lease rentals consist of seven equal annual payments, the first of which was paid on December 31, 2017 6) CORONA properly accounts for this lease as a direct financing lease and as a finance lease by Charlie. Both lessor and lessee are calendar year corporations and depreciate all property, plant, and equipment on the straight line basis. The present value tables show the following present value factors: Present value of 1 for seven periods at 12% Present value of 1 for seven periods at 14% Present value of an annuity due for seven periods at 12% Present value of an annuity due for seven periods at 14% 0.4523 0.3996 5.1114 4.8387

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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