Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC The lease is classified as sales type lease. at the end of the lease term. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term
Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC The lease is classified as sales type lease. at the end of the lease term. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term
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 6P: Sales-Type Lease with Unguaranteed Residual Value Lessor Company and Lessee Company enter into a...
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![Problem 4. Direct Financing Lease with Residual Value
On January 1, 20x1, ABC Financing Co.
leased e quipment to
XYZ Inc.
Information on the lease is shown below.
Cost of Equipment
P3 00,000
Useful Life of Equi pment
5 years
Lease Term
4 years
Annual rent payable at the end of each year
100,000
Market rate of interest
10%
Residual Value
20,000
The equipment will revert back to ABC at the end of the lease term.
The lease is classified as sales type lease.
Requirements:
Compute for
the following assuming the residual value
is (1) guar anteed and (2) unguaranteed
a. Gross investment in the lease on Januar y 1, 20x1
b. Net-inves tment in the lease on January 1, 20x1
c. Total interest income to be recognized over the lease term
d. Sales, cost of sales and gross profit recognized on the lease
e. Journal entry on January 1, 20x1.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F74a0fabd-1d0c-4e15-ae13-7047b910b003%2F58542a21-38ff-4cd5-9b00-1c7896592120%2Fonnxm9e_processed.png&w=3840&q=75)
Transcribed Image Text:Problem 4. Direct Financing Lease with Residual Value
On January 1, 20x1, ABC Financing Co.
leased e quipment to
XYZ Inc.
Information on the lease is shown below.
Cost of Equipment
P3 00,000
Useful Life of Equi pment
5 years
Lease Term
4 years
Annual rent payable at the end of each year
100,000
Market rate of interest
10%
Residual Value
20,000
The equipment will revert back to ABC at the end of the lease term.
The lease is classified as sales type lease.
Requirements:
Compute for
the following assuming the residual value
is (1) guar anteed and (2) unguaranteed
a. Gross investment in the lease on Januar y 1, 20x1
b. Net-inves tment in the lease on January 1, 20x1
c. Total interest income to be recognized over the lease term
d. Sales, cost of sales and gross profit recognized on the lease
e. Journal entry on January 1, 20x1.
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