On March 1, 2021, Happy Company leased equipment to 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
On March 1, 2021, Happy Company leased equipment to 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 Happy 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. • Present value of 1 discounted at 10% for 4 periods is 0.68301. • Present value of annuity due of 1 for 4 periods discounted at 10% is 3.48685. • Present value of ordinary annuity of 1 at 10% for 4 periods is 3.16987.
How much is the gross investment in the lease prior to the first payment?
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