Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee on...

 

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Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee on January 1, 2014 under a direct financing lease with the following provisions: Cost of equipment Unguaranteed residual value Initial direct cost Indirect cost Useful life and lease term Implicit interest rate Present value of an ordinary annuity of 1 for 8 years at 10% Present value of an ordinary annuity of 1 for 7 years at 10% Present value of 1 for 8 years at 10% 3,500,000 200,000 100,000 50,000 8 years 10% 5.335 4.868 0.466 The annual rental is P700,000 payable at the beginning of each year. The equipment will not revert to the lessor upon the lease expiration. (Round-off to whole peso) REQUIREMENTS: 1. If the entity uses Direct Finance Lease, what is the net income(loss) on December 31, 2014? 2. If the entity uses Sales-type Lease, what is the net income(loss) on December 31, 2014? 3. If the asset will revert back to the lessor and the fair value at the end of the lease term is P50,000, what is the net income(loss) of Oceanic Company under Direct Finance Lease in 2021? 4. If the asset will revert back to the lessor, what is the cost of sales under Sales-type Lease? Oceanic Company is engaged in leasing equipment. Such an equipment was delivered to a lessee on January 1, 2014 under a direct financing lease with the following provisions: Cost of equipment Unguaranteed residual value Initial direct cost Indirect cost Useful life and lease term Implicit interest rate Present value of an ordinary annuity of 1 for 8 years at 10% Present value of an ordinary annuity of 1 for 7 years at 10% Present value of 1 for 8 years at 10% 3,500,000 200,000 100,000 50,000 8 years 10% 5.335 4.868 0.466 The annual rental is P700,000 payable at the beginning of each year. The equipment will not revert to the lessor upon the lease expiration. (Round-off to whole peso) REQUIREMENTS: 1. If the entity uses Direct Finance Lease, what is the net income(loss) on December 31, 2014? 2. If the entity uses Sales-type Lease, what is the net income(loss) on December 31, 2014? 3. If the asset will revert back to the lessor and the fair value at the end of the lease term is P50,000, what is the net income(loss) of Oceanic Company under Direct Finance Lease in 2021? 4. If the asset will revert back to the lessor, what is the cost of sales under Sales-type Lease?

Answer rating: 100% (QA)

In a direct financing lease the lessor accounts for the income from the sale over time as the lease ... View the full answer