On January 1, 20x1, ABC Financing Co leased equipment to XYZ, Inc. Information on the lease is shown below: Cost of Equipment Useful Life of Equipment Lease Term Annual Rent Payable at the end of each year Interest Rate Implicit in the lease Residual Value P330, 647 5 years 4 years 100,000 10 % 20,000 The equipment will revert back to ABC at the end of the lease term. The lease is classified as direct financing lease.

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.