Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC The lease is classified as sales type lease. at the end of the lease term. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term
Problem 4. Direct Financing Lease with Residual Value On January 1, 20x1, ABC Financing Co. leased equipment to XYZ Inc. Information on the lease is shown below. Cost of Equipment P3 00,000 Useful Life of Equi pment 5 years Lease Term 4 years Annual rent payable at the end of each year 100,000 Market rate of interest 10% Residual Value 20,000 The equipment will revert back to ABC The lease is classified as sales type lease. at the end of the lease term. Requirements: Compute for the following assuming the residual value is (1) guar anteed and (2) unguaranteed a. Gross investment in the lease on Januar y 1, 20x1 b. Net-inves tment in the lease on January 1, 20x1 c. Total interest income to be recognized over the lease term
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Transcribed Image Text:Problem 4. Direct Financing Lease with Residual Value
On January 1, 20x1, ABC Financing Co.
leased e quipment to
XYZ Inc.
Information on the lease is shown below.
Cost of Equipment
P3 00,000
Useful Life of Equi pment
5 years
Lease Term
4 years
Annual rent payable at the end of each year
100,000
Market rate of interest
10%
Residual Value
20,000
The equipment will revert back to ABC at the end of the lease term.
The lease is classified as sales type lease.
Requirements:
Compute for
the following assuming the residual value
is (1) guar anteed and (2) unguaranteed
a. Gross investment in the lease on Januar y 1, 20x1
b. Net-inves tment in the lease on January 1, 20x1
c. Total interest income to be recognized over the lease term
d. Sales, cost of sales and gross profit recognized on the lease
e. Journal entry on January 1, 20x1.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 2 images
Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education