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Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning

Rachel Company used leases as a method of selling products. In the current year, Rachel Company completed construction of a construction equipment. At the beginning of the current year, the construction equipment was leased on a contract specifying that ownership of thereon will transfer to the lessee at the end of the lease period. The annual lease payments do not include executory costs. Original cost of the construction equipment is P9,000,000. Lease payments payable at beginning of each year is P2,000,000. Estimated residual value is P1,000,000. Implicit interest rate is 12%, 10-year lease term. Present value of an annuity due of 1 at 12% for 10 periods is 6.33 and PV of 1 at 12% for 10 periods is 0.32.

  • How much is the total financial revenue over the lease term?
  • What amount should be reported as gross profit on sale?
  • Based on the information of Rachel Company how much is the interest income for the current year?

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