Reference no: EM133188141

Question 1 - On January 1, 2022, Mixer Textiles leased a cutting machine from Good Machinery. The lease is for five years with bargain purchase option of P100,000. It is reasonably certain that Mixer will exercise the option at the end of the lease period. The machine has an estimated useful life of 8 years with zero residual value. The lease calls for Mixer to make annual payments of P350,000 due at the beginning of each year. Mixer uses the straight-line method of depreciation and pays 10% interest on borrowed money. At inception of the lease Mixer paid P120,000 initial direct cost.

The lease contract also requires Mixer to make variable lease payments based on the increase in consumer price index (CPI) at the start of each year compared to the CPI on January 1, 2022. The CPI is 110 on January, 2022, and 120 on January 1, 2023.

What is the carrying amount of the right-of-use asset at the end of 2022?

A. P1,436,352

B. P1,456,224

C. P1,313,236

D. P1,295,820

Question 2 - On its December 31, 2021 statement of financial position, Emig Corp. reported bonds payable of P5,680,000. The bonds had a P6,000,000 face value. On January 2, 2022, Emig retired P3,000,000 of the outstanding bonds at par plus a call premium of P70,000. What amount should Emig report in its 2022 income statement as loss on extinguishment of debt (ignore taxes)?

A. P230,000

B. P160,000

C. P0

D. P70,000

Question 3 - On January 1, 2021, Jason Corp. purchased 5-year bonds with a face value of P10,000,000 and a stated interest rate of 12% per year collectible every December 31. The bonds were acquired to yield 11%. These bonds were classified based on business model of collecting contractual cash flows and to sell. On December 31, 2021 and December 31, 2022, the bonds were quoted at 104 and 102, respectively. Assuming that ¾ of the bonds were sold on August 31, 2022 at total proceeds of P8,500,000. What is the total amount in profit or loss in 2022?

A. P1,281,281

B. P1,050,848

C. P1,052,445

D. P956,337

Question 4 - On January 1, 2022, Edward Corporation (lessor) enters into a ten-year lease of equipment to Kirk Corporation (lessee). The equipment has estimated useful life of 15 years. Lease payments are P380,000 per year all payable at the beginning of each year. The fair value of the leased asset on this date P3,132,161. The rate implicit in the lease is 6%. Kirk Guaranteed a residual value of P300,000. Assuming that the lease is a sales type lease and the cost of the asset is P2,500,000 and the residual value is unguaranteed, how much is the balance of lease receivable as of December 31, 2022 and the gross profit?

A. P2,955,789 and P632,161

B. P2,917,291and P632,161

C. P2,686,921 and P799,681

D. P2,739,722 and P799,681

Question 5 - On January 1, 2022, Precious Company leased an equipment with a useful life of 10 years from Casita Company. The lease term is for a period of 8 years. The annual rental is P210,100 payable every January 1 of each year starting 2022. Precious Company incurred and paid P60,000 associated with the contract of lease. A P30,000 lease incentive was received by Precious Company at the commencement of the lease in form of reimbursement from the P60,000 paid by Precious. Precious Company has the option to purchase the building at the end of the lease term at P50,000 and it is reasonably certain that the option will be exercised. The implicit rate is 8%. The building is estimated to have P80,000 of residual value at the end of lease term and P60,000 at the end of its useful life. How much is the balance of lease liability as of December 31, 2022 and the carrying value of the right-of-use asset as of December 31, 2022?

A. P1,210,542 and P1,100,777

B. P1,330,972 and P1,040,729

C. P1,080,477 and P1,040,729

D. P1,042,272 and P1,100,777