Will Company entered into a finance lease on January 1, 2018. A third party guaranteed the residual value of the asset under the lease estimated to be P1,200,000 on January 1, 2023, the end of the lease term. Annual lease payments are P1,000,000 due each December 31 beginning December 31, 2018. The last payment is due December 31, 2022. The remaining useful life of the asset was six years at the commencement of the lease. Both the lessor and lessee used 10% as the interest rate. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79.

1. What is the net lease receivable of the lessor at the commencement of the lease? A. 2,590,000 B. 3,790,000 C. 4,534,000 D. 4,990,000

2. What is the total interest that the company will earn over the lease term? A. 466,000 B. 1,210,000 C. 1,666,000 D. 2,410,000

3. What is the carrying value of the lease receivable as of December 31, 2019? A. 3,386,140 B. 3,987,400 C. 4,386,140 D. 4,987,400

4. What amount should be included in non-current assets in relation to the lease on December 31, 2019? A. 661,386 B. 2,000,000 C. 2,724,754 D. 3,386,140

5. What is the interest income 2020? A. 199,723 B. 272,475 C. 338,614 D. 398,740

6. What amount should be included in current assets in relation to the lease on December 31, 2020? A. 727,525 B. 1,000,000 C. 1,997,229 D. 2,724,754

7. On January 1, 2016, Bruce Company acquired a specialized packaging machine for P6,000,000 and leased it for a period of 6 years, after which the machine is to be returned to Bruce. The unguaranteed residual value of the packaging machine is P400,000. The lease term is arranged so that a return of 12% is earned by Bruce. The first lease payment is due on January 1, 2016. The PV of 1 at 12% for six periods is 0.51; PV of an annuity in advance of 1 at 12% for six periods is 4.60; and the PV of an ordinary annuity of 1 at 12% for six periods is 4.11. What is the annual lease payment required to yield the desired return? A. 1,260,000 B. 1,304,348 C. 1,410,219 D. 1,459,854

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