Reference no: EM133099151

Question 1 - On January 1, 20x1, OFFICIOUS Financing Co. leased equipment to MEDDLESOME, Inc. under direct financing lease. Information on the lease is shown below: Cost of equipment P1,200,000; Useful life of equipment 5 years; Lease term 4 years; Annual rent payable at the end of each year P440,000; Non-lease component included in annual rent P36,196; Initial direct costs 80,000; Implicit rate of interest in the lease 10%; The non-lease component pertains to payment for supplies and other consumables relating to the operation of the equipment. The stand-alone selling prices are: P36,196 for the supplies, and P403,804 for the rent. On January 1, 20x3, due to cash flow problems, OFFICIOUS agreed to sell the equipment to MEDDLESOME, Inc. for P600,000. How much is the gain (loss) on the sale?

a. P(100,816)

b. None of the choices

c. P20,816

d. P100,816

e. P0

Question 2 - Customer X enters into a five-year contract with Supplier Y for the use of a rolling stock specifically designed for Customer X. The rolling stock is designed to transport materials used in Customer X's production process and is not suitable for use by other customers. The rolling stock is not explicitly specified in the contract, but Supplier Y owns only one rolling stock that is suitable for Customer X's use. If the rolling stock does not operate properly, the contract requires Supplier Y to repair or replace the rolling stock. Supplier Y does not have a substantive substitution right. Is the rolling stock an identified asset?

a. Yes, because the rolling stock is implicitly specified in the contract.

b. Yes, because the contract extends beyond 12 months.

c. None of the choices

d. No, because I don't know what a rolling stock is.

e. No, because the rolling stock is not explicitly specified in the contract.