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Patbingsu Machineries, dealer of machinery and equipment, leased equipment to Africa Products on July 1, 2019
Patbingsu Machineries, dealer of machinery and equipment, leased equipment to Africa Products on July 1, 2019. The lease is appropriately accounted for as a sale by Patbingsu and as a purchase by Africa. The lease is for 10-year period (the useful life of the asset) expiring on July 1, 2029. The first ten equal annual payments of P250,000 was made on July 1, 2019. Patbingsu purchased the equipment for P1,337,500 on January 1, 2019 and established a list selling price of P1,687,500 on the equipment. Assume that the present value at July 1, 2019 of the payments over the lease term discounted at 12% was P1,582,500. What amount of gross profit on the sale and the amount of interest income that Patbingsu should record for the year ended December 31, 2019?
A. P350,000 and P94,950 C. P350,000 and P79,950
B. P245,000 and P94,950 D. P245,000 and P79,950
Expert Solution
Amount of gross profit and Interest income that Patbingsu should record for the year ended December 31, 2019: P245,000 and P79,950
Profit on sale = Selling price of equipment - cost of equipment
= 1,582,500 - 1,337,500
= 245,000
Interest income = Net receivable * interest rate * 6/12 (semiannual )
= (1,582,500- 250,000 ) *12%* 6/12
= 79950
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