Pizzicato Co. a dealer, leases a brand-new machine to Prestissimo, Inc. The machine is classified as inventory in Pizzicato’s books and has a carrying amount of P1,500,000. The useful life of the machine is 5 years. The lease term is 4 years and the annual rent, due at the beginning of each year, is P600,000. Pizzicato Co. incurred direct cost O P20,000 in negotiating the lease. The market rate of interest is 10%. The machine reverts back to Pizzicato at the end of the lease term, at which time the machine is expected to have a residual value of P180,000. Pizzicato accounts for the lease sale type lease.
Pizzicato Co. a dealer, leases a brand-new machine to Prestissimo, Inc. The machine is classified as inventory in Pizzicato’s books and has a carrying amount of P1,500,000. The useful life of the machine is 5 years. The lease term is 4 years and the annual rent, due at the beginning of each year, is P600,000. Pizzicato Co. incurred direct cost O P20,000 in negotiating the lease. The market rate of interest is 10%. The machine reverts back to Pizzicato at the end of the lease term, at which time the machine is expected to have a residual value of P180,000. Pizzicato accounts for the lease sale type lease.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Pizzicato Co. a dealer, leases a brand-new machine to Prestissimo, Inc. The machine is classified as inventory in Pizzicato’s books and has a carrying amount of P1,500,000. The useful life of the machine is 5 years. The lease term is 4 years and the annual rent, due at the beginning of each year, is P600,000. Pizzicato Co. incurred direct cost O P20,000 in negotiating the lease. The market rate of interest is 10%. The machine reverts back to Pizzicato at the end of the lease term, at which time the machine is expected to have a residual value of P180,000. Pizzicato accounts for the lease sale type lease.
What amounts for the following should Pizzicato Co. report in Year 1 of the lease assuming the residual value is guaranteed?
-
a
Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,215,053.00 1,500,000.00 695,053.00 161,505.00 1,776,558.00 a , Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,215,053.00 1,500,000.00 695,053.00 161,505.00 1,776,558.00 , -
b.
Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,215,053.00 1,500,000.00 715,053.00 161,505.00 1,776,558.00 b. , Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,215,053.00 1,500,000.00 715,053.00 161,505.00 1,776,558.00 , -
c.
Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,092,111.00 1,500,000.00 592,111.00 161,505.00 1,776,558.00 c. , Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,092,111.00 1,500,000.00 592,111.00 161,505.00 1,776,558.00 , -
d.
Sales Cost of Sales Net Selling profit Interest income Net investment, end 2,092,111.00 1,377,058.00 592,111.00 161,505.00 1,776,558.00
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