Reference no: EM132575726

Question 1: On January 1, 2015, Belle Enterprises acquired a machine by signing a four - year lease. Annual rentals of P1,742,174 are payable at the beginning of each year starting January 1,2015. Belle does not guarantee the residual value of P1,200,000 at the end of the lease term. The asset's useful life is 5 years, at the end of which, the asset's scrap value is expected to be P80,000. Bello uses straight line method to depreciate this asset. The lessor's implicit interest rate is 10%, which is known to Bello.

Present value of 1 discounted at 10% for 4 periods is 0.68301.

Present value of 1 discounted at 10% for 5 periods is 0.62092

Present value of annuity due of 1 for 4 periods discounted at 10% is 3.48685.

Present value of ordinary annuity at 10% for 4 periods is 3.16987.

At what amount should this machine be recorded by Belle on January 1, 2015?______________

Question 2: Use the same information given in 1. How much depreciation should Belle Enterprises record on this machine for the year 2015?___________________

Question 3: On January 1, 2015, Bella Company acquired a machine by signing a four-year lease. Annual rentals of P1,742,174 are payable at the beginning of each year starting January 1,2015. Bella is given the option to buy the machine for P250,000 at December 31, 2018, when the asset's market price is expected to be P1,250,000. The asset's useful life is 6 years, at the end of which the asset's scrap value is expected to be P80,000. Bella uses straight-line method to depreciate this asset.

With an implicit interest rate of 10%, Bella appropriately recorded the machine and the related liability on January 1, 2015 at P6,245,450

On December 31,2018, the end of the lease term, Bella failed to exercise the purchase option. How much loss, if any, should Bella recognize as a result of the failure to exercise the purchase option?

Question 4: On August 1, 2015, Gabriel Company leased a machine to Way Company for a six-year period requiring payments of P100,000 at the beginning of each year. The machine cost P480,000, which is the fair value at the lease date, and has a useful life of eight years with no residual value. Gabriel appropriately recorded the lease as a direct financing lease. Gabriel's implicit interest rate is 10% and present value factors are as follows:

PV of an annuity due of P1 at 10% for 6 periods 4.800

PV of an annuity due of P1 at 10% for 8 periods 5.868

At the inception of the lease, the gross lease receivables account balance should be___________

Question 5: Use the same information given in 4. How much is the interest revenue relating to the lease for the year ended December 31, 2015?_________________

Question 6: Michael Company leased equipment to Hay Corporation on July 1, 2015 for an eight-year period expiring June 30, 2023. Equal payments under the lease are P600, 000 and are due on July 1 of each year. The first payment was made on July 1, 2015.

The rate of interest contemplated by Michael and Hay is 10%. The cash selling price of the equipment is

P3,520,000, and the cost of the equipment on Michael's accounting records is P2,800,000. The lease is

appropriately recorded as a dealer's lease.

What is the amount of profit on the sale that Michael should record for the year ended December 31,2015?_________________

Question 7: Use the same information given in 6. What is the interest revenue reported in Michael's statement of comprehensive income for the year ended December 31,2015?__________________

Question 8: On January 1, 2015, Thelma Industries leased equipment to Trician Company for a four-year period ending December 31,2018. The equipment cost Thelma P300,000 and has an expected useful life of five years. Annual payments are P118,951, which includes P10,000 executory costs. The equipment's fair value is P400,000. The lessee guarantees the residual value of P80,000. Lease payment is due every December 31 and Trician made the first payment on December 31,2015. Trician's implicit interest rate 10%.

Thelma incurred P15,000 costs to consummate the lease contract.

Present value of 1 discounted at 10% for 4 periods is 0.68301.

Present value of annuity due of 1 for 4 periods discounted at 10% is 3.48685

Present value of ordinary annuity of 1 at 10% for 4 periods is 3.16987.

How much profit, inclusive of interest revenue, should Thelma report from this lease for the year ended December 31,2015?

Question 9: Use the same information given in 8. How much should Thelma report as net investment in lease on December 31,2015 statement of financial position?

Question 10: Glade Company leases computer equipment to customers under direct financing lease. The equipment has no residual value at the end of the lease and the leases do not contain bargain purchase options. Glade wishes to earn 8% interest on a five year lease of equipment with a fair value of P323, 400. The present value of an annuity due of P1 at 8% for 5 years is 4.312.

What is the total amount of interest revenue that Glade will earn over the life of the lease