The bank is financing the acquisition of machinery of X through direct finance lease. The machinery has cost of P480,000 and residual value of P 50,000 . No transfer of title and no option to purchase. The term of the lease is 3 years and also the life of the machinery. The bank desired to earn 12% interest on its investment which include initial direct cost of P20,000.

1. How much is the required annual rental, payable in arrears?            

2. How much is the gross investment?                                   

3. How much is the net investment of the lessor in lease?                

4. How much is the interest income for the 3 year term of lease?           

5. At the end of the 1st year, after payment of the required annual rental, how much is the net book value of un-earned Interest Income?                        

6. At the end of the 1st year, after payment of the required annual rental, how much is the net book value of lease receivable?                               

7. If at the end of the lease, the fair value of the machinery is P20,000, what is the book entry in the books of lessor if

*Residual value is guaranteed.                             

*Residual value is un-guaranteed.