On January 1, 2010, Gallant Company entered into a lease agreement with Blacksheep Company for a machine which was carried on the accounting records of Gallant at P2,000,000.  Total payments under the lease which expires on December 31, 2019, aggregate P3,550,800 of which P2,400,000 represents cost of the machine to Blacksheep.  Payments of P355,080 are due each January 1 of each year.  The interest rate of 10% which was stipulated in the lease is considered fair and adequate compensation to Gallant for the use of its funds.  Blacksheep expects the machine to have a 10-year life, no residual value and be depreciated on a straight line basis.  The lease is to be conceived as a sales type lease.  What should be the total income before income tax derived by Gallant from this lease for the year ended December 31, 2010?   a. 204,492 b. 604,492 c. 355,080 d. 755,080

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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.