No.-5 FINANCE LEASE SALES-TYPE LEASE, UNGUARANTEED RESIDUAL VALUE Moonstruck Company manufactures a reservation system with an estimated economic life of 12 years and leases it to National Airlines for a period of 10 years. The normal selling price of the equipment is P278,072, and its unguaranteed residual value at the end of the lease term is estimated to be P20,000. National will pay annual payments of P40,000 at the beginning of each year and all maintenance, insurance, and taxes. Moonstruck incurred costs of 180,000 in manufacturing the equipment and 4, 000 in negotiating and closing the lease. Moonstruck has determined that the implicit interest rate is 10%. 11. Discuss the nature of this lease in relation to the lessor and compute the amount of each of the following items. a. Lease receivable at inception of the lease. b. Sales price. Cost of sales. 12. Prepare a 10-year lease amortization schedule. Annual Lease Beginning of Year Payment Plus Residual Value Interest (10%) on Lease Receivable Lease Receivable Recovery Lease Receivable Initial PV 1 2 3 4 5 6 7 8 9 10 End of 10 13. Assume the same data as in the preceding problem with National Airlines Co. having an incremental borrowing rate of 10%. Discuss the nature of this lease in relation to the lessee, and compute the amount of the initial obligation under finance leases. 14. Prepare a 10-year lease amortization schedule. Beginning of Year Initial PV 1 2 3 4 Annual Lease Payment Plus Interest (10%) on Unpaid Liability Reduction of Lease Liability Lease Liability I 7 56981d 10