Problems 9-3 and 9-6

Annuity in advance 4,037 Problem 9-6 (LAA) Ordinary annuity 3.605 Required: Alpha Company buys equipment for leasing to various manufacturing entities. On January 1, 2011, Alpha Company Prepare all entries for 2011 and 2012 on the books of Makati Leasing using the "direct financing lease" concept. leased an equipment to another entity. The cost of the equipment to Alpha Company was P1, 377,480 which Problem 9-3 (LAA) approximates the fair value on the lease date. The lease Iceberg Company is in the business of leasing new payments stipulated in the lease are P440,000 per year in sophisticated equipment. Such an equipment was delivered advance for a 4-year period of the lease. The payments include to a lessee on January 1, 2011 under a direct financing lease P40,000 executory costs per year. with the following provisions: Cost of equipment 3,390,000 The expected economic life of the equipment is also 4 years. Annual rental payable at the end of year 600,000 Useful life and lease term 10 years The title to the equipment remains in the hands of Alpha Implicit interest rate 12% Company at the end of the lease term, although only nominal Present value of an ordinary annuity of 1 at 12% for 10 years 5.650 Present value of an ordinary annuity of 1 at 11% for 10 years 5.889 residual value is expected at that time. The implicit interest rate in the lease is 11%. The fiscal year of Alpha Company Iceberg Company incurred and paid initial direct costs of ends December 31. P143,400 in negotiating and arranging the lease. The equipment will revert to Iceberg Company at the end of Required: the lease. Required: 1. Compute the total financial revenue. 1. Compute the total financial revenue to be recognized 2. Prepare an amortization schedule for the lease receivable over the lease term. and interest income. 2. Prepare all the entries on the books of Iceberg Company 3. Prepare the entries for 2011, 2012, 2013 and 2014. for 2011. 372 370