n January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information onthe lease is as follows:Cost of equipmentP1,200,0005 years4 yearsUseful life of equipmentLease termAnnual rent payable at the end of each yearInterest rate implicit in the leaseP400,00010%Residual valueP80,000The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as salestype lease.a. How much is the gross investment in the lease on January 1, 20x1 assuming the residual value isguaranteed?b. How much are the sales and cost of sales if the residual value is unguaranteed?

Sales type lease Accounting Concept of lease accounting lessor point of view Gross Investment…

Cost of equipment P1,200,000 5 years 4 years Useful life of equipment Lease term Annual rent payable at the end of each year P400,000 Interest rate implicit in the lease 10% Residual value r80,000 uipment will revert back to POLTROON at the end of the lease term. The lease is classifie ase. How much is the gross investment in the lease on January 1, 20x1 assuming the residu.

Cost of equipment P1,200,000 5 years 4 years Useful life of equipment Lease term Annual rent payable at the end of each year P400,000 Interest rate implicit in the lease 10% Residual value r80,000 uipment will revert back to POLTROON at the end of the lease term. The lease is classifie ase. How much is the gross investment in the lease on January 1, 20x1 assuming the residu.

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

n January 1, 20x1, POLTROON Co. leased a piece of equipment to COWARD, Inc. Information on
the lease is as follows:
Cost of equipment
P1,200,000
5 years
4 years
Useful life of equipment
Lease term
Annual rent payable at the end of each year
Interest rate implicit in the lease
P400,000
10%
Residual value
P80,000
The equipment will revert back to POLTROON at the end of the lease term. The lease is classified as sales
type lease.
a. How much is the gross investment in the lease on January 1, 20x1 assuming the residual value is
guaranteed?
b. How much are the sales and cost of sales if the residual value is unguaranteed?

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