On March 1, 2021, Happy Company leased equipment Great Company for a four-year period ending February 28, 2025. The equipment cost Happy Company P310,000 and has an expected useful life of five years. Annual payments are P109,047, which includes P10,000 executory costs. The equipment's fair value is P400,000. The lessee guarantees the residual value of P80,000. Lease payment is due every March 1 and Great Company made the first payment on March 1, 2021. The lessor's implicit interest rate is 10%. Happy Company incurred P16,000 costs to consummate the lease contract. The present value of 1 discounted at 10% for 4 periods is 0.68301. The present value of an annuity due of 1 for 4 periods discounted at 10% is 3.48685. The present value of an ordinary annuity of 1 at 10% for 4 periods is 3.16987. How much profit, inclusive of interest revenue, should Happy Company report from this lease for the year ended December 31, 2021? (round off the final answer to the nearest peso) *

On March 1, 2021, Happy Company leased equipment Great Company for a four-year period ending February 28, 2025. The equipment cost Happy Company P310,000 and has an expected useful life of five years. Annual payments are P109,047, which includes P10,000 executory costs. The equipment's fair value is P400,000. The lessee guarantees the residual value of P80,000. Lease payment is due every March 1 and Great Company made the first payment on March 1, 2021. The lessor's implicit interest rate is 10%. Happy Company incurred P16,000 costs to consummate the lease contract. The present value of 1 discounted at 10% for 4 periods is 0.68301. The present value of an annuity due of 1 for 4 periods discounted at 10% is 3.48685. The present value of an ordinary annuity of 1 at 10% for 4 periods is 3.16987. How much profit, inclusive of interest revenue, should Happy Company report from this lease for the year ended December 31, 2021? (round off the final answer to the nearest peso) *

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter20: Accounting For Leases

Section: Chapter Questions

Problem 10MC: On August 1, 2019, Kern Company leased a machine to Day Company for a 6-year period requiring...

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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

On March 1, 2021, Happy Company leased equipment Great Company for a four-year period
ending February 28, 2025. The equipment cost Happy Company P310,000 and has an expected
useful life of five years. Annual payments are P109,047, which includes P10,000 executory costs.
The equipment's fair value is P400,000. The lessee guarantees the residual value of P80,000.
Lease payment is due every March 1 and Great Company made the first payment on March 1,
2021. The lessor's implicit interest rate is 10%.
Happy Company incurred P16,000 costs to consummate the lease contract.
The present value of 1 discounted at 10% for 4 periods is 0.68301. The present value of an
annuity due of 1 for 4 periods discounted at 10% is 3.48685. The present value of an ordinary
annuity of 1 at 10% for 4 periods is 3.16987.
How much profit, inclusive of interest revenue, should Happy Company report from this lease for
the year ended December 31, 2021? (round off the final answer to the nearest peso) *

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