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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
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Ivie Company uses leases as a method of selling its products. In 2020, Ivie Company completed
construction of a passenger ferry. On January 1, 2020, the ferry was leased on a contract
specifying that ownership of the ferry will transfer to the lessee at the end of the lease period.
Annual lease payments do not include executory costs. Other terms of the agreement are as
follows:
Original cost of the ferry P9,000,000
Lease payment payable in advance P2,000,000
Estimated residual value P1,000,000
Implicit interest rate 12%
Date of first lease payment January 1, 2020
Lease term 10 years
4. What is the profit on sale for 2020?
5. What is the interest income for 2020?
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