Hitech Company, a dealer in machinery and equipment, leased equipment to Quality

Company on July 1, 2013. The lease is appropriately accounted for as a sale by Hitech and as
a purchase by Quality. The lease is for a ten-year period equal to the useful life of the asset
expiring June 30, 2023. The first of ten equal annual payments of P250,000 was made on July
1, 2013. Hitch had purchased the equipment for P1,337,500 on January 1, 2013, and
established a list selling price of P1,687,500 on the equipment. The present value on July 1,
2013 of the rent payments over the lease term discounted at 12% was P1,582,500. What
amount of profit on sale and interest income should be recorded for the year ended December
31, 2013, respectively?
a. 245,000 and 94,950 c. 350,000 and 79,950
b. 245,000 and 79,950 d. 350,000 and 94,950

1. Meg Company leased equipment from Wee Company on July 1, 2013 for an eight-
year period expiring June 30, 2021. Equal payments under lease are P600,000 and are
due on July 1 of each year. The first payment was made on July 1, 2013. The rate of
interest contemplated by Meg and Wee is 10%. The cash selling price of the
equipment is P3,520,000 and the carrying amount is P2,800,000. The lease is
approximately recorded as a sales type lease. What amount of profile on the sale and
interest revenue should be recorded for the year ended December 31, 2013?
Profit on Sale Interest revenue Profit on Sale Interest revenue
a. 720,000 176,000 c. 45,000 176,000
a. 720,000 146,000 d. 45,000 146,000