Problem 2EXO Company decided to enter the leasing business. The entity acquired a specialized packagingmachine for P2,300,000. At the beginning of the current year, the entity leased the machine under adirect financing lease for period of six years, after which title to the machine is transferred to the lessee.The six annual lease payments are due each January 1 and first payment was made on January 1 of thecurrent year. The residual value of the machine is P200,000. The lease terms are arranged so that areturn of 12% is earned by EXO Company.The present value of 1 at 12% for six perlods is 0.51, and the present value of an annulty in advance of 1at 12% for six periods is 4.60.What amount should be recognized as annual lease rental payable in advance required to yleld thedesired return?

Lease refers to a contract between two parties under which one party who is the real owner of an…

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Business

Accounting

What amount should be recognized as annual lease rental payable in advance required to yleld the desired return?

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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Concept explainers

Leasing

Leasing is a contractual arrangement in which someone (a lessee) pays the owner (or lessor) of a building, land, vehicle, or other asset for the use of that asset. The lease is the agreement between lessee and lessor.

Question

Problem 2
EXO Company decided to enter the leasing business. The entity acquired a specialized packaging
machine for P2,300,000. At the beginning of the current year, the entity leased the machine under a
direct financing lease for period of six years, after which title to the machine is transferred to the lessee.
The six annual lease payments are due each January 1 and first payment was made on January 1 of the
current year. The residual value of the machine is P200,000. The lease terms are arranged so that a
return of 12% is earned by EXO Company.
The present value of 1 at 12% for six perlods is 0.51, and the present value of an annulty in advance of 1
at 12% for six periods is 4.60.
What amount should be recognized as annual lease rental payable in advance required to yleld the
desired return?

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