Reference no: EM132932206
Questions -
Q1) BMW Machineries, dealer of machinery and equipment, leased equipment to Best Products on July 01, 2021. The lease is appropriately accounted for as a sale by BMW Machineries and a purchase by Best Products. The lease is for a 10-year period (the useful life) of the asset expiring on June 30, 2031. The first of ten equal annual payments of P250,000 was made on July 01, 2021. BMW Machineries purchased the equipment for P1,337,500 on January 01, 2021 and established a list selling price of P1,687,500 on the equipment. Assume that the present value at July 01, 2021 of rent payments over the lease term discounted at 12% was P1,582,500.
What is the amount of net investment in the lease and the total income that BMW Machineries should recognize for the year ended December 31, 2021?
A. P1,332,500 and P339,950
B. P1,332,500 and P324,950
C. P1,412,450 and P339,950
D. P1,412,450 and P324,950
Q2) On August 1, 2020, V Company leased a machine to Jhope company for six years requiring payments of P100,000 at the beginning of each lease year. The machine cost P470,000, which is the fair value at the inception of the lease. V company has the option to purchase the machine for P5,000 which is significantly lower than the expected fair value of the machine at the lease expiration date. V company incurred an initial direct cost of P3,000. The interest rate implicit in the lease is 10%. V appropriately recorded the lease as a direct financing lease. How much total financial revenue would V Company earned over the term of the lease?
A. P132,000
B. P125,000
C. P135,000
D. P130,000
Q3) On January 1, 2020, Torta Corporation signed a ten-year non-cancelable lease for certain machinery. The terms of the lease called for Torta to make annual payments of P100,000 at the end of each year for ten years with title to pass to Torta at the end of this period. The machinery has an estimated useful life of 15 years and no salvage value. Torta uses the straight-line method of depreciation for all of its fixed assets. The lease payments were determined to have a present value of P671,008 at an effective interest rate of 8%.
With respect to this capitalized lease, Torta should record for 2020
A. interest expense of P45,681 and depreciation expense of P67,101
B. interest expense of P44,734 and depreciation expense of P38,068
C. rent expense of P100,000
D. interest expense of P53,681 and depreciation expense of P44,734