Sushi Co., a lessor of equipment, purchased a new equipment for ₱1,000,000 on December 31, 2020. The equipment was delivered the same day to Mooncake Co., the lessee. The following information relates to the lease transaction: The leased asset has an estimated useful life of seven years, which is also the lease term. At the expiration of the lease, the equipment will revert to Sushi, at which time it is expected to have a residual value of ₱120,000 (none of which is guaranteed). Sushi’s implicit interest rate is 12%. Mooncake’s incremental borrowing rate is 14% at December 31, 2020. Lease rentals consist of seven equal annual payments, the first of which was paid on December
Sushi Co., a lessor of equipment, purchased a new equipment for ₱1,000,000 on December 31, 2020.
The equipment was delivered the same day to Mooncake Co., the lessee. The following information
relates to the lease transaction:
The leased asset has an estimated useful life of seven years, which is also the lease term.
At the expiration of the lease, the equipment will revert to Sushi, at which time it is expected to
have a residual value of ₱120,000 (none of which is guaranteed).
Sushi’s implicit interest rate is 12%.
Mooncake’s incremental borrowing rate is 14% at December 31, 2020.
Lease rentals consist of seven equal annual payments, the first of which was paid on December
31, 2020.
Sushi properly accounts for this lease as a direct financing lease and as a finance lease by
Mooncake. Both lessor and lessee are calendar year corporations and
plant and equipment on the straight-line basis.
Questions: (Round off present value factors to 4 decimal places):
4. What amount of interest expense should be recognized by Mooncake for 2021?
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