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Iceberg Company

Iceberg Company

FINANCIAL ACCOUNTING
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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Iceberg Company is in the business of leasing new sophisticated equipment. Such an equipment was delivered. to a lessee on January 1, 2011 under a direct financing lease with the following provisions: Cost of equipment Annual rental payable at the end of year Useful life and lease term 3,390,000 600,000 Implicit interest rate Present value of an ordinary annuity of 1 at 12% for 10 years Present value of an ordinary annuity of 1 at 11% for 10 years 10 years 12% 5.650 5.889 Iceberg Company incurred and paid initial direct costs of P143,400 in negotiating and arranging the lease. The equipment will revert to Iceberg Company at the end of the lease. Required: 1. Compute the total financial revenue to be recognized over the lease term. 2. Prepare all the entries on the books of Iceberg Company for 2011.
Transcribed Image Text:Iceberg Company is in the business of leasing new sophisticated equipment. Such an equipment was delivered. to a lessee on January 1, 2011 under a direct financing lease with the following provisions: Cost of equipment Annual rental payable at the end of year Useful life and lease term 3,390,000 600,000 Implicit interest rate Present value of an ordinary annuity of 1 at 12% for 10 years Present value of an ordinary annuity of 1 at 11% for 10 years 10 years 12% 5.650 5.889 Iceberg Company incurred and paid initial direct costs of P143,400 in negotiating and arranging the lease. The equipment will revert to Iceberg Company at the end of the lease. Required: 1. Compute the total financial revenue to be recognized over the lease term. 2. Prepare all the entries on the books of Iceberg Company for 2011.
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