For questions related to the LESSEE (COMPLICATION, INC.), assume that they employ the STRAIGHT-LINE METHOD OF DEPRECIATION. Use the Present Value Factors as is (straight from the calculator, no rounding), round off final answers to the NEAREST WHOLE NUMBER.(1) LEASE LIABILITY ON JANUARY 1, 20X1(2) RIGHT-OF-USE ASSET ON JANUARY 1, 20X1(3) TOTAL Finance Income OVER THE LEASE TERM Part II: Computational1. On January 1, 20x1, IMBROGLIO Co. leased equipment to COMPLICATION, Inc. Information on the lease is shownbelow:Cost of equipment P1,200,000Useful life of equipment 5 yearsLease term4 yearsAnnual rent payable at the start of each year 400,000Interest rate implicit in the lease 10 %Initial direct costs amounted to P80,000. The lease qualifies for sales type lease accountingRequirements: Compute for the following:a. Gross Investment in the lease on January 1, 20x1.b. Net Investment in the lease on January 1, 20x1.c. Total Finance Income over the lease term.d. Gross profit from sale.e. Net profit from sale.

Lease refers to the agreement made between two parties which are known as lessor and lessee. Lessor…

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FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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For questions related to the LESSEE (COMPLICATION, INC.), assume that they employ the STRAIGHT-LINE METHOD OF DEPRECIATION. Use the Present Value Factors as is (straight from the calculator, no rounding), round off final answers to the NEAREST WHOLE NUMBER.
(1) LEASE LIABILITY ON JANUARY 1, 20X1

(2) RIGHT-OF-USE ASSET ON JANUARY 1, 20X1

(3) TOTAL Finance Income OVER THE LEASE TERM

Part II: Computational
1. On January 1, 20x1, IMBROGLIO Co. leased equipment to COMPLICATION, Inc. Information on the lease is shown
below:
Cost of equipment P1,200,000
Useful life of equipment 5 years
Lease term4 years
Annual rent payable at the start of each year 400,000
Interest rate implicit in the lease 10 %
Initial direct costs amounted to P80,000. The lease qualifies for sales type lease accounting
Requirements: Compute for the following:
a. Gross Investment in the lease on January 1, 20x1.
b. Net Investment in the lease on January 1, 20x1.
c. Total Finance Income over the lease term.
d. Gross profit from sale.
e. Net profit from sale.

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