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INTERMEDIATE ACCOUNTING 2

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a Use the following information for the next two questions: Pizzicato Co., a dealer, leases a brand new machine to Prestissimo, Inc. The machine is classified as inventory in Pizzicato's books and has a carrying amount of P1,500,000. The useful life of the machine is 5 years. The lease term is 4 years and the annual rent, due at the beginning of each year, is P600,000. Pizzicato Co. incurred direct costs of P20,000 in negotiating the lease. The market rate of interest is 10%. The machine reverts back to Pizzicato at the end of the lease term, at which time the machine is expected to have a residual value of P180,000. Pizzcato accounts for the lease as a sales type lease. 10. What amounts for the following should Pizzicato Co. report in Year 1 of the lease assuming the residual value is guaranteed? Cost of Net selling Interest Net investment, Sales sales profit income end. 2,215,053 1,500,000 695,053 161,505 1,776,558 b. 2,215,053 1,500,000 715,053 161,505 1,176,558 C. 2,092,111 1,500,000 592,111 161,505 1,776,558 d. 2,092,111 1,377,058 592,111 161,505 1,176,558 a. 11. What amounts for the following should Pizzicato Co. report in Year 1 of the lease assuming the residual value is unguaranteed? a. Cost of Sales TO sales 2,215,053 1,500,000 b. 2,215,053 1,500,000 c. 2,092,111 1,377,058 d. 2,092,111 1,377,058 Net selling profit 695,053 715,053 695,053 695,053 Interest income 161,505 161,505 161,505 161,505 Net investment end. 1,776,558 1,176,558 1,176,558 1,776,558