2. On January 1, 2019, Ultra Company leased equipment to another entity under a sales type finance lease. Rentals are payable

at the end of each year, beginning December 31, 2019. The lease term is 6 years and the useful life of the equipment is 8

years.

The fair value of the equipment is P 1,273,800 while the cost is P 800,000. The implicit rate in the lease is 12% which is

known to the lessee.

The lessee has the option to purchase the equipment for P 80,000 at the end of the lease term. It is reasonably certain that

the lessee will exercise the purchase option.

Required: (do not round off the present value factor)

a. What is the annual rental payment?

b. What amount should be reported initially as total franchise revenue?

c. What amount should be reported as gross income from the sale?

d. What amount should be reported as interest income for 2019?