Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leasedto another entity with the following provisions:Annual rental payable at the end of each yearLease term and useful life of machineryCost of machineryResidual value-unguaranteedImplicit interest ratePV of an ordinary annuity of 1 for 5 periods at 12%PV of 1 for 5 years at 12%3,000,0005 years8,000,0001,000,00012%3.600.57At the end of the 5-year lease term, the machinery will revert to Seventeen.Seventeen incurred initial direct cost of P300,000 in finalizing the lease agreement.1. What amount should be reported as total unearned interest income?a. 4,630,000b. 4,200,000c. 5,200,000d. 3,630,0002. What amount should be reported as gross income on sale?a. 7,700,000b. 3,070,000c. 2,500,000d. 3,370,0003. What amount should be reported as interest income for current year?a. 1,364,400b. 1,296,000C 1,800,000d. 926,000

It is an arrangement between two parties in which one party (lessor) allows another party (lessee)…

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Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased to another entity with the following provisions:

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Question

Seventeen Company is a dealer in machinery. At the beginning of current year, a machinery was leased
to another entity with the following provisions:
Annual rental payable at the end of each year
Lease term and useful life of machinery
Cost of machinery
Residual value-unguaranteed
Implicit interest rate
PV of an ordinary annuity of 1 for 5 periods at 12%
PV of 1 for 5 years at 12%
3,000,000
5 years
8,000,000
1,000,000
12%
3.60
0.57
At the end of the 5-year lease term, the machinery will revert to Seventeen.
Seventeen incurred initial direct cost of P300,000 in finalizing the lease agreement.
1. What amount should be reported as total unearned interest income?
a. 4,630,000
b. 4,200,000
c. 5,200,000
d. 3,630,000
2. What amount should be reported as gross income on sale?
a. 7,700,000
b. 3,070,000
c. 2,500,000
d. 3,370,000
3. What amount should be reported as interest income for current year?
a. 1,364,400
b. 1,296,000
C 1,800,000
d. 926,000

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