Topic: Leases

On January 1, 2020 Pico Company entered into a direct financing lease. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2025, the end of the lease term. Annual lease payments are P1,000,000 due each December 31, beginning December 31, 2020. The last payment is due December 31, 2024. The remaining useful life of the asset was 6 years at the commencement of the lease. The lessor used 10% as the implicit interest rate. The PV of 1 at 10% for 5 periods is .62 and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79.

• What is the net lease receivable of the lessor at the commencement of the lease?
• Using the information of Pico Company, what is the gross investment in the lease?
• How much is the total unearned interest income?
• How much is the interest income for 2020?