Problem 14-19 (IAA) At the beginning of current year, Ultra Company lease. equipment to alessee under a sales type lease. Rentals ar payable at the end of each year, beginning December 31 a the current year. The lease term is 6 years and the usefu
Problem 14-19 (IAA) At the beginning of current year, Ultra Company lease. equipment to alessee under a sales type lease. Rentals ar payable at the end of each year, beginning December 31 a the current year. The lease term is 6 years and the usefu
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Please answer all the sub-parts 1-4. I badly need it. And please provide concrete solution as well as explanation. Thank you so much.
Transcribed Image Text:Problem 14-19 (IAA)
At the beginning of current year, Ultra Company leased
equipment to alessee under a sales type lease. Rentals are
payable at the end of each year, beginning December 31 of
the current year. The lease term is 6 years and the useful
life of the equipment is 8 years.
The fair value of the equipment was P1,273,800 while the
cost was P800,000. The implicit rate in the lease is 12% which
is known to the lessee.
The lessee had the option to purchase the equipment for
P80,000 at the end of the lease term. It is reasonably certain
that the lessee shall exercise the purchase option.
The present value of 1 at 12% for 6 periods is 0.51 and the
present value of an ordinary annuity of 1 at 12% for 6 periods
is 4.11.
1. What amount should be recognized as annual rental
payment?
a. 194,647
b. 184,720
c. 300,000
d. 309,927
2. What amount should be reported initially as total financial
revenue?
a. 606,200
b. 526,200
c. 388,320
d. 920,000
3. What amount should be reported as gross income from
the sale?
a. 606,200
b. 473,800
c. 553,800
d.
0
4. What amount should be reported as interest income for
the current year?
a. 152,856
b. 216,000
c.
147,960
d. 101,033
454
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question
Hi! I can't seem to get the answer on number 2. When I try to solve it using the formula given, it arrives on different answer.
Solution
by Bartleby ExpertKnowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education